Via Zero Hedge, just as the Swiss Central Bank retreats from propping up the Euro :
As of early this morning the Swiss Central Bank (SNB) has backed out of the market and has temporarily suspended currency intervention. The market reaction has been swift. The dollar has soared against the Euro along with all of the Euro crosses. Equities markets have all reacted negatively.
What triggered the Swiss to back off the intervention is a critical question. My answer to that is that the SNB has never intended to hold a given level of the E/CHF. The SNB has a very good handle on the supply and demand conditions in the market. If they see demand for the CHF that is in excess of their ability/willingness to absorb they just back off and let the market find a new level that they can more easily control.
This mornings demand for CHF against the crosses is probably related to new information on Eastern European (Hungary) and possibly supported by rumors at Soc.Gen. It does not matter what the impulse for the current move. The lesson to learn is that the SNB is unwilling to hold any given rate for the E/CHF. Their only objective is to slow the inevitable. With that lesson now learned there is no bottom for the Euro. We have entered a new, highly uncertain FX environment.
China steps in to satisfy it’s G20 duties :
RanSquawk report that according to “well-placed sources in Beijing” China is now buying EUR above 1.20 to stabilize the currency in advance of a G20 meeting later in June, per a previous agreement with the G20 members. This surely explains why the euro magically got vacuumed up by 60 pips in a manner of seconds as soon as a breach of 1.20 was imminent. Alas, as we pointed out previously, the half life of central bank interventions is now laughable: at some point interventions using fiat methods will have no impact whatsoever.
All of which resulted in today’s Euro misery as seen on the chart below.
FT Alphaville reports on the French PM opening his mouth which didnt help at all :
EURUSD is currently at $1.207 — more than a four-year low. Helped in part, by yet more government speech-acts:
RTRS-FRENCH PM – I ONLY SEE GOOD NEWS IN PARITY BETWEEN EURO AND DOLLAR
RTRS-EURO FALLS MORE THAN HALF A U.S. CENT AFTER FRENCH PM COMMENTS
I would expect Frau Merkel’s bosom to be doing a bit of heaving this evening over what to do with her French problem although I am pretty sure that the PM was helping his master, Monsieur Sarkozy who, being of Hungarian descent, probably wants to give a helping hand to the Florint rather than shaft Europe :
What happens when government spokespeople start saying things like this:
June 4 (Bloomberg) — Hungary’s economy is in a “grave situation” because the previous government “manipulated” figures and “lied” about the state of the economy, said Peter Szijjarto, spokesman for Prime Minister Viktor Orban. The forint fell for a second day, dropping as much as 1.8 percent.
Or this:
“It’s clear that the economy is in a very grave situation,” Szijjarto said. “We need a clean slate to formulate our economic action plan, and the fact-finding committee will provide just that.”
Or this:
“It’s no exaggeration” to talk about a default, Szijjarto said today.
All of which happened as the IMF is admitting that it doesn’t have enough funds to bail out a Poundland paddling pool, let alone Europe :
Those observing the emperor’s lack of clothing are multiplying. Earlier today, someone opened their mouth, and remarked on the blatantly obvious. Next thing you know Hungarian CDS was 30% wider, Romanian bond auctions were failing, the euro was tumbling, the PPT was scrambling, US markets closed green with nobody trading, etc. Yet the “letting the genie out of the bottle” award of the day has to go to the head of IMF’s policy-steering committee, Youssef Boutros-Ghali who said that the IMF is essentially insolvent in its current form of being the go to backstop for a European bailout. “If we are going to start including funds made available to Europe, then the IMF is not properly resourced,” Youssef Boutros-Ghali told Reuters, adding that IMF members were talking of doubling the amount of SDRsThe means the IMF is $318 billion short of solvency.
Still unsure that Europe really has a big problem? Then try this amusing little bit of Australian satire via The Devils Knife which explains the whole game in a couple of minutes.
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