Assessing the Aftermath of SNB Shocker from EUR's Perspective
- EURUSD slumps back below $1.1600.
- USDJPY remains vulnerable with US CPI due later today.
- See the DailyFX Economic Calendar for Friday, January 16, 2015.
For those left standing after the Swiss National Bank's monumental decision to abruptly remove the EURCHF Sf1.2000 floor, there is a noticeable sucking sound reverberating through the market. That noise is the vacuum created by the SNB's relentless bid on the Euro disappearing.
With arguably the biggest bull in the Euro market no longer supporting price, no wonder EUR-crosses have collapsed in the wake of the SNB's latest decision. Risk assets haven't benefited all that much either from the decision, even if it has been interpreted by market participants as a fairly obvious signal that the SNB believes that the ECB is ready to engage in an aggressive balance sheet expansion effort, one which it (the SNB) can't keep pace with.
Needless to say, the implications for the Euro are significant and the expectations for successive negative news events are quite high. The hurdle of achievement for Euro bears is high, maybe too high, over the coming days. Already there's news out of Greece that a Syriza victory wouldn't mean a Greek exit; or that the ECB's QE program may only amount to €500 billion.
Neither would constitute the incredibly bearish scenario priced into the EUR-complex; after all, EURUSD is now trading at an 11-year low after taking out the November 2005 swing low of $1.1640 yesterday.
The factors that might influence volatility over the next few days are quite high. As VaR models at funds across the world flash concern - which, ironically could propagate a flight to safety, a massive negative feedback loop in financial markets - traders may too find it best to pare down leverage and institute more stringent risk management policies.
--- Written by Christopher Vecchio, Currency Strategist
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