JLS: EUR Carry Trading Activity Managed by CHF Carry Traders
The well known brother and sister currencies EUR & CHF is regulated by the SNB with One-Sided Band as publicated by the IMF/BIS by limiting their price volatility after the removal of EURCHF pegged price at 1.1200 policy. The one-sided band policy allows the EUR funds to be assigned for carry trading management by the CHF.
The assignment of the EUR funds to CHF carry traders is confirmed by the closer price volatility of CHF-pegged pairs (NZDCHF, AUDCHF, CADCHF and GBPCHF) to EUR-pegged pairs (EURNZD, EURAUD, EURCAD and EURGBP) then to EURUSD. This is caused by the fact that JPY carry traders also carry the EUR and EUR-denominated debt securities.
The current closer price volatility of CHF-pegged pairs (NZDCHF, AUDCHF, CADCHF and GBPCHF) to USD-pegged pairs (NZDUD, AUDUSD, CADUSD and GBPUSD) will only to be seen during the USDCHF at 0.9900-1.0100 and their price volatilities will not close if and when the USDCHF far from 0.9900-1.0100. Thus, referencing their current price volatility at current USDCHF 0.9900-1.0100 seems to be rationale but become irrational if and when the USDCHF far from the 0.9900-1.0100 in the future.
However, the EURCHF one-sided band policy is a policy maintained by the SNB to allow the EUR funds to be managed by CHF carry traders for carry trading by taking narrower risk of EURCHF target zone to off-set.
The assignment of the EUR funds to CHF carry traders is confirmed by the closer price volatility of CHF-pegged pairs (NZDCHF, AUDCHF, CADCHF and GBPCHF) to EUR-pegged pairs (EURNZD, EURAUD, EURCAD and EURGBP) then to EURUSD. This is caused by the fact that JPY carry traders also carry the EUR and EUR-denominated debt securities.
The current closer price volatility of CHF-pegged pairs (NZDCHF, AUDCHF, CADCHF and GBPCHF) to USD-pegged pairs (NZDUD, AUDUSD, CADUSD and GBPUSD) will only to be seen during the USDCHF at 0.9900-1.0100 and their price volatilities will not close if and when the USDCHF far from 0.9900-1.0100. Thus, referencing their current price volatility at current USDCHF 0.9900-1.0100 seems to be rationale but become irrational if and when the USDCHF far from the 0.9900-1.0100 in the future.
However, the EURCHF one-sided band policy is a policy maintained by the SNB to allow the EUR funds to be managed by CHF carry traders for carry trading by taking narrower risk of EURCHF target zone to off-set.