The Swiss Franc Exchange Rate Limit Is Broken Soon. Intervention Risk Warning Is Ringing.

The euro / Swiss Franc renewed its 26 month low in the European market on Friday (November 14th), a step away from the lower 1.2000 limit set by the SNB.

The current dangerous situation in the euro / dollar has led to fears that the Swiss central bank will soon enter the market to intervene in the strength of the Swiss franc.

The GDP data released by the two largest economies failed to reduce expectations for further easing of monetary policy by the ECB.

Germany's third quarter economy avoided a recession, and the French economy was slightly better than expected.

This indicates that economic growth in the euro area will be sluggish, but it will not shrink.

The German statistical bureau announced Friday that the third quarter gross domestic product (GDP) increased by only 0.1% compared with the previous quarter, while the second quarter was revised down to 0.1%.

France's third quarter GDP increased by 0.3% compared with the previous quarter, slightly better than the analyst's forecast growth of 0.2%.

This is the fastest growth rate of French economy in more than a year, but in the second quarter, GDP has revised down 0.1%.

Market participants said that the factors affecting the euro / Swiss Franc exchange were the referendum on the Swiss central bank's gold reserve in November 30th. If the referendum is approved, it will seriously restrict the flexibility of the Swiss central bank's intervention.

Recent polls show that the referendum is unlikely to pass.

UBS, a leading international investment bank, expects the central bank to intervene in the market to protect the franc ceiling.

The Swiss Franc has reached the closest level since the 1.2000 limit against the euro, the Swiss central bank said last time to sell the Swiss Franc to defend the ceiling for the last time since September 2012.

Analysts pointed out that if the vote is passed, the SNB will raise the proportion of gold assets to foreign exchange reserves from the current 8% to at least 20%, which may increase the difficulty of controlling the exchange rate of the Swiss Franc by the central bank.

"The intervention in 2012 indicates that the Swiss central bank may enter the Swiss Franc when it reaches 1.2010 or so, and the possibility of the adoption of the proposal to buy the euro and increase the gold ratio does not seem to be large," Beat Siegenthaler, a foreign exchange strategist at UBS in Zurich, said in a report.

In November 30th this year, Switzerland will hold a referendum on gold related matters, which include the request of the SNB to stop selling gold and take back the gold reserve of Switzerland, and demand that at least 20% of the assets of the SNB assets are gold (at present, the share of gold in the Swiss central bank is less than 8%).

Once the referendum is passed, Switzerland will have to buy at least 1500 metric tons of gold in the next 5 years.

However, despite recent polls showing that voters have not yet made a decision, the euro / Swiss Franc faces the most severe test in more than 2 years as the referendum date approaches.

According to the latest Internet news released by the Swiss media 20 Minuten, 38% of the 12491 surveyed in October 27th supported the gold referendum (45% in the first round), 47% opposed (39% in the first round) and 15% (16%) in 15%.

To acquire gold, the SNB needs to sell foreign exchange reserves, most of which are euro assets.

Such behaviour will push down the exchange rate of the euro against other currencies of the world, including the Swiss franc.

Georgette Boele, head of global exchange at ANB, Holland, said that as the referendum slowly entered the market focus, we are moving in the direction of 1.20.

If the vote is passed, it is possible to break through the upper limit of 1.20.

The Swiss Franc exchange rate limit is broken soon.

According to a Tokyo foreign exchange sales trader who knows the options market in November 11th, there was a demand for euro / Swiss Franc one month option before the SNB gold reserve was voted on in November 30th and the SNB December 11th policy meeting.

This also shows that there may be no small fluctuations in the euro / Swiss Franc in the next 1 months.

The trader pointed out that demand for Euro (bearish) / Swiss Franc (bullish) option and euro (bullish) / CHF (bearish) option are currently in demand.

At present, the euro / Swiss franc's implied volatility in the month has climbed 7 basis points to 4.1675%, and the euro / Swiss franc is basically flat at 1.2031. Yesterday, it hit 1.2022, the lowest level since September 2012.

In order to support the economy, the Swiss central bank has stipulated that the Swiss Franc should not exceed 1.20 Swiss francs to 1 euros, but last week the Swiss Franc rose to less than 0.25% from the ceiling.

This is the closest to the 1.20 level of the Swiss Franc since September 2012. In September 2012, the Swiss central bank intervened in the market for the last time defending the exchange rate ceiling.

Option traders raised the Swiss franc's bullish position to a two-year high.

According to the latest Internet news released by the Swiss media 20 Minuten, 38% of the 12491 surveyed in October 27th supported the gold referendum (45% in the first round), 47% opposed (39% in the first round) and 15% (16%) in 15%.