SNB Riks BOJ

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A catchup on some of the big events.

by Brent Donnelly

September 21, 2023

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September 21, 2023

Swiss Yen

Much of the big news is now out, but we still have BOJ, UK Retail Sales, UK PMIs, Germany PMI, Canada Retail Sales, and a US PMI to come before the weekend. The most interesting result overnight was the SNB leaving rates unchanged as they gain confidence that the move below 2% is for real.

Surprisingly, they left in the language on selling foreign currencies (buying CHF), so their confidence is not absolute yet. I read this as the SNB giving themselves a free option in the unlikely case of rapid currency depreciation, as opposed to them having a strong desire to sell currencies and buy CHF here. Here’s the wording from the statement.

“To provide appropriate monetary conditions, the SNB is also willing to be active in the foreign exchange market as necessary. In the current environment, the focus is on selling foreign currency.”

There was a clean break in CHFJPY, and it has left behind a ton of single prints between 144.00 and 144.50. You can see in this market profile chart that yesterday’s low is also the top of the post-SNB gap. It is interesting that USDJPY is struggling to make new highs even as US yields blast higher. It looks to me like there is a motivated seller at 148 and there is also probably some risk reduction from CTAs and carry trade USDJPY longs ahead of BOJ.

CHFJPY Market Profile

It seems to me there is a chance we get something interesting from the BOJ tonight. Perhaps some sort of forward guidance on rate hikes for Q1 2024 or an even more exciting result would be if they said something to the effect of “weak JPY pushing inflation higher poses risks.” The market has been thrice bitten and is now a bit shy about putting on JPY longs into a BOJ meeting, but that’s another reason it might work.

On the other hand, given the lame reactions to BOJ and the rapid rise in US rates, you could argue the better trade is to just wait for the “no change” announcement from the BOJ and buy USDJPY. If you do that, you probably get a quick rip towards 149 but I would be wary of intervention as 150 nears.

Sweden Flow

The Riksbank continues its unconvincing efforts to strengthen the currency with a decision to reduce some currency risk in its FX reserves (sell FX, buy SEK) and EURSEK spiked briefly down and then recovered almost instantly (see chart below).

The Riksbank faces a bad mix of weak growth, high inflation, and no credible way to boost a weak currency. Don’t forget about this speech tomorrow:

Thedéen: Why is the Swedish krona so weak? Friday 08:00 Stockholm time (2 a.m. NYC). Governor Erik Thedéen will participate in a seminar on the depreciation of the krona arranged by SNS (Center for Business and Policy Studies) and SHOF (Swedish House of Finance) at the Stockholm School of Economics.

This does not sound like a policy announcement setting, but it could give a sense of how resigned the Riksbank are to further weakness. The two-year downtrend in SEK (higher EURSEK) has hit a bit of a brick wall in the 11.94/11.96 zone. A close above 12.00 should bring in a big wave of momentum and stop loss buying.