Apologies to the Kipling literary estate.
From FT Alphaville:
Beat Siegenthaler, FX strategist at UBS, has been wondering about what the Swiss National Bank may do if the ECB’s measures to weaken the euro begin to test its 1.20 EURCHF floor....MORE
He notes, for example, that there has already been a marked divergence between the EURCHF and the USDCHF:
As Siegenthaler explains:
Looking back over the last few months, however, the EURUSD almost breaching 1.40 on 8 May was probably decisive in prompting the ECB into a reaction at the June meeting, implementing negative interest rates, launching further liquidity injections via the TRLTROs and preparing the ground for asset purchases. Even though it was not immediately obvious, it now seems clear that the launch of the ECB package was an important event for the franc too, as it marked the moment when EURCHF broke out of the previous pattern and embarked on another leg lower. The escalation of political tensions in Eastern Europe and the Middle East did not help, though are unlikely to have been a major driver. Instead, the ECB becoming ever more dovish seems the crucial factor.The key question then is if and when the euro continues to weaken will the SNB trust in the power of the 1.20 floor to stop the franc from becoming “overvalued”, or will it somehow try to stop it from being tested in the first place?...