Last December I warned that a “market timebomb” will destroy the Swiss Banks by 2016.
Incredibly, it seems that the Swiss Banks could not wait to drop another “timebomb” of their own… this year!
Last week the Swiss National Bank (SNB) decided to remove its currency peg to the Euro. They did this without any warning, and without any thought to its consequences for the financial industry.
As a result of the SNB decision, the Swiss Franc surged by nearly 30% in a single day, something not seen before in the currency markets.
To say that the Swiss Bank decision has “angered” just about everyone in the Financial industry is putting it mildly. It has caused chaos and mayhem from Wall Street to London, Europe and Hong Kong.
To understand the volatility this created, think of it like this:
There was a gap in the Swiss currency market of about 1500 pips (points) on Thursday. This means a trader who was short on the Swiss Franc with 10 contracts, would have ended up losing about $190,000 – even if he was risking only $5,000!
Of course if you were “long” on the Swiss Franc, you’d probably be very happy… but that’s another story.
The traders who were most affected by the SNB decision last week were those who were trading the Swiss Franc currency pairs (such as the EURCHF and USDCHF).
The good news is that the Swiss Franc’s move last week would NOT have affected the traders on our database. This is because we do not trade the Swiss pairs and have not done so for a long time.
You should also be aware that right now some traders are making a big mistake…. Here’s why:
Some traders are still considering to trade the Swiss Franc currency pairs. Our view is that this is completely dangerous.
We are avoiding the Swiss Franc currency because of one important reason:
The Swiss National Bank said last week that Switzerland is ready to intervene in the currency markets to weaken the Swiss Franc if necessary. This is because the SNB considers the Swiss Franc to be “overvalued”.
There is a possibility that the Swiss economy will fall into recession, unless the Swiss banks intervene again.
My friend and fellow trader, Kevin (Charlie) Burton, who also avoids the Swiss Franc put it best:
“Traders want excitement. But what you have to remember you are in the game of is trying to make money! Not being excited. So what you want to do is look for stable instruments in which to trade. Your job is to be as boring as possible. Be like an accountant and approach the same markets and currencies every day – and get good at doing that.”
Good investing!
Alessio Rastani is a stock market trader at www.leadingtrader.com