REMOVAL OF CAP BY SNB WAS A SHOCK IN FOREX
It was happened unexpectedly, suddenly and dramatically. Very few currency traders could predict that the Swiss National Bank would remove the cap put on the Franc. So many traders who trades relying on the technical analysis, unknowingly placed a sell order on the USD/CHF currency pair ,and saw they had earned what they could earn in 80-100 days when they were back after having a cup of tea.
Some traders were also kicked out of the market losing all of the capital, specially the brave traders who do not care to trade without placing stop loss. They were punished as they acted. Not only individual but also the institutions like FXCM struggled so much.
What is the cap we are talking about?
The forex traders who started trading after the introduction of the cap on Franc by the SNB even do not know definition of the cap, that is buzzing in the international currency market.The cap was a ceiling put by the SNB that 1.2 francs is equal to an euro, which was a restriction on movement of the value of franc.
Why and when did the SNB put the cap on the Franc ?
SNB put this restriction on the franc to protect it from being over valuated during the time when the Euro Zone was experiencing serious debt crisis in 2011.That time as the Euro Zone was in debt crisis, investors were spreading big hand towards the Swiss economy, considering it as a safe haven because of the economic and political stability.
As a result, the franc was soaring high, and affecting the exporters by making the exported products expensive to the foreigners. That was the main reason why SNB put the restriction cap on the franc.
Why did SNB remove the cap ?
SNB dropped the cap suddenly on 15th January 2015 through the introductory remarks by Thomas Jordan in the press conference held in Zurich. The reasons behind the cap removal was as follows.
In the above 30m price chart of USD/CHF we can see a big gap was created after the comment of removing cap by Thomas Jordan.
I have specially felt interest to write the post about this big event in currency market to warn the new traders who ignore the fundamental analysis and act lazily in placing a stop loss. Hope this post will enrich your knowledge of fundamental analysis, and will help you to trade safely.
If you have any question regarding the post, you can drop a comment below.
Some traders were also kicked out of the market losing all of the capital, specially the brave traders who do not care to trade without placing stop loss. They were punished as they acted. Not only individual but also the institutions like FXCM struggled so much.
What is the cap we are talking about?
The forex traders who started trading after the introduction of the cap on Franc by the SNB even do not know definition of the cap, that is buzzing in the international currency market.The cap was a ceiling put by the SNB that 1.2 francs is equal to an euro, which was a restriction on movement of the value of franc.
Why and when did the SNB put the cap on the Franc ?
SNB put this restriction on the franc to protect it from being over valuated during the time when the Euro Zone was experiencing serious debt crisis in 2011.That time as the Euro Zone was in debt crisis, investors were spreading big hand towards the Swiss economy, considering it as a safe haven because of the economic and political stability.
As a result, the franc was soaring high, and affecting the exporters by making the exported products expensive to the foreigners. That was the main reason why SNB put the restriction cap on the franc.
Why did SNB remove the cap ?
SNB dropped the cap suddenly on 15th January 2015 through the introductory remarks by Thomas Jordan in the press conference held in Zurich. The reasons behind the cap removal was as follows.
- Many Swiss criticized the SNB for making a huge currency reserve, which they remarked as a risk of future hyperinflation. In Switzerland it was a hot political debate.
- SNB saw a higher probability of introducing "Quantitative Easing" by the ECB, which would decrease the value of euro that was already bearish for a long period. As a result, SNB thought that it would require to print more franc in order to maintain the cap.
- SNB also thought that the franc was not that much over valuated to hurt the export.
What was the shocking comment by Thomas Jordan?
In the press conference Thomas Jordan said "The Swiss National Bank (SNB) has decided to discontinue the minimum exchange rate of CHF 1.20 per euro with immediate effect and to cease foreign currency purchases associated with enforcing it."-(Source)
How was the USD/CHF affected by this decision?
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| metatrader4.com |
Above image,a daily chart of USD/CHF, is taken from the MetaTrader4 trading platform. On the price chart we can see that the USD dropped about 4000 pips against the CHF on the day the comment was made by Thomas Jordan.
I have specially felt interest to write the post about this big event in currency market to warn the new traders who ignore the fundamental analysis and act lazily in placing a stop loss. Hope this post will enrich your knowledge of fundamental analysis, and will help you to trade safely.
If you have any question regarding the post, you can drop a comment below.
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