Volkmar Guido Hable | Euro/Swiss Franc Exchange Rate Technical Updat

As most investors are aware the Swiss National Bank put a floor of 1.20 CHF into the exchange rate in September 2011 and has stated on a couple of occasions that it will do everything to defend that level. The move was necessary in order to stop the free fall of the Euro against the CHF. Speculators trying to push it since then have been quickly caught by the Swiss National Bank since then.
Obviously, this floor is extremely one-sided and sets the stage for major volatility somewhen in the future. The Euro/Swiss Franc exchange rate trades extremely close to the floor of 1.20 CHF, signaling huge demand for Swiss Francs in general. There is no doubt that the Swiss national bank is losing billions of Euros by trying to maintain this floor. Speculators have taken notice and have positioned themselves for a historical record “long Euro” position.
Data shows that the number of traders long the Euro/Swiss Franc outnumber those short by a massive 44 to 1 at this time. In other words—nearly 99.5% of traders in are currently long the Euro against the Swiss Franc. How did such extreme bets play out in the past?
Take a look at the chart below. Red arrows mark similar extremes when traders have been betting heavily against the Swiss Franc in favor of the Euro. It is quite obvious that their bets were never rewarded and ended in a financial blood bath on each occasion.
Based on historical precedence traders and investors alike would have to assume that these extreme long Euro positions are very risky, to say the least. The financial markets usually do the opposite of what the vast majority of market participants expect them to do. Even if we could build a positive technical and fundamental case for the Euro (which I can’t see how at this time), the Swiss National Bank will certainly shake out all those being “long Euro” before it allows a free float again, as it always has done in the past.
What happens next? 
The threat of a showdown looms dangerously large in the EUR-CHF pair and promises a great deal of volatility. At some point, the Swiss national bank will allow a free float again. If this happens, investors and traders alike should be prepared for further appreciation of the Swiss Franc. The Swiss National Bank, a very powerful institution richly endowed with financial ammunition, will in its own interest most certainly not allow all those speculators being “long Euro” to get away with their profits at its expense. At this time the Swiss National Bank is unlikely to abandon the floor it imposed. It seems to me that the prudent trader should look for a different opportunity than the EUR-CHF pair, and the prudent investor should be staying in CHF or switching to CHF considering the threat of a Euro breakup. Time will tell whether this strategy proves successful.

Location: Florida, USA

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