Retail traders have literally never been more net-long the Euro against the Swiss Franc, underlining that most are aggressively speculating on Swiss National Bank intervention as the EURCHF approaches SFr 1.20.
Retail FX Traders at their Most Long Euros Against the Swiss Franc on Record
Our proprietary FXCM Speculative Sentiment Index data shows that the number of retail traders long the Euro against the Swiss Franc outnumber those short by an incredible 26.6 to 1 – over 96% of retail traders are long. Needless to say most expect that the Swiss National Bank will defend their stated Euro/Swiss Franc exchange rate at SFr 1.2000.
Data source: FXCM Retail Client Data
Chart source: Tradestation
Will the Swiss National Bank Come to the Rescue of Retail FX Traders?
Retail speculators are heavily net-long the Euro against the Swiss Franc and have continued to buy into recent declines. This means that any major EURCHF rally would in effect bail out many underwater speculators from unprofitable positions. Yet one gets the sense that the Swiss National Bank is reluctant to give free money to the speculative FX market. That is: any intervention would likely be expensive and would almost certainly benefit many of the same speculators that continue to push the Euro/Swiss Franc exchange rate lower.
What does this mean for FX traders?
Given that we are in unchartered territory, it is difficult to say what the Euro/Swiss Franc exchange rate will do next. Realistically we believe the Swiss National Bank when they say that they will defend the SFr 1.20 floor with “unlimited amounts” of FX market intervention. Yet in practice it is difficult to believe they would come to the rescue of such a broad swath of forex speculators.
Over 96 percent of retail traders in our sample are currently long, and a Swiss National Bank intervention would almost certainly bail out many speculators holding unprofitable positions. That may be a difficult pill to swallow for a central bank embroiled in its own minor controversy over forex speculation. Yet ultimately the Swiss National Bank’s credibility is on the line, and a major EUR/CHF break below the SFr 1.20 could dramatically change traders’ perception of the central bank.
--- Written by David Rodríguez, Quantitative Strategist for DailyFX.com
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