One-month euro/Swiss franc implied volatility rose to 3.538% last week from 3.033% the week before as investors bought euro calls/Swiss franc puts when spot rallied to CHF1.4780 from CHF1.4680. Traders said spot moved due to indications from the Swiss National Bank that it is considering intervening to weaken the franc. Investors were buying options with maturities of up to three months with strikes ranging from CHF1.48-1.50 at spot levels of around CHF1.4720, traders said.
One dealer said about EUR2 billion (USD2.15 billion) of trades have gone through in the past two weeks, including a single trade of EUR700 million with a CHF1.48 strike. Traders said the options were likely executed on behalf of end users as there is not a lot of speculative interest in the currency pair.
Paul Meggyesi, currency strategist at JPMorgan in London, does not expect the Swiss central bank to intervene at these levels. The last time the Swiss bank intervened was in the late 1970s when its action caused money supply growth to rocket to 40%, causing inflation to spike to 5% from 0%. "[Central bankers] still have memories of the last time they did this," Meggyesi said. The reason the intervention had such an effect is that the Swiss current account is extremely strong at 12% of gross domestic product, Meggyesi explained. He predicted the Swiss franc would retrace its steps as the market is likely to call the central bank's bluff.
EUR/CHF Spot & One Month Implied Volatility
