The SNB face a unique set of issues when intervening in the Asian timezone, namely the lack of credit lines which is has with all Asian banks. What this in effect means, is that the SNB could be on the bid at 1.2000 for EUR8 billion, as it was last week, but other counterparties could be offering at 1.1995 as they have no limits to trade with the SNB. This of course offers excellent arbitrage opportunities for banks who have credit lines with both sides, but banks will also baulk at taking on large credit risk for the sake of a quick 5 pip arb.
I’m hearing from a Swiss bank source, that the 1.2000 ‘cap’ isn’t meant to be an absolutely definitive ‘do not pass’ line and that the SNB may press the release valve if the numbers get too big, allowing stops to go off before they try and re-establish the CHF cap. Sounds very risky to me, as once below 1.2000 it will be very hard to regain the level again.
The SNB has put itself in an absolutely terrible position from a market perspective, and I guess the only way out for them is to keep printing fresh CHF to pay for the exercise. This may go against the grain of the Swiss psyche but they would only be doing what everyone else is doing.
