Currency war: Swiss fight back, remove cap on Euro, forcing Wall Street losses, forex firms fail
2015 will be marked by moments of self preservation, especially in financial markets. Thursday, the Swiss National Bank shocked the global financial world by announcing it removed the September 2011 cap placed on the currency’s value against the Euro, in a move to protect the Franc and prevent further losses caused by pressure from the global currency war.
January 15, 2015: “Recently, divergences between the monetary policies of the major currency areas have increased significantly – a trend that is likely to become even more pronounced. The euro has depreciated considerably against the US dollar and this, in turn, has caused the Swiss franc to weaken against the US dollar. In these circumstances, the SNB concluded that enforcing and maintaining the minimum exchange rate for the Swiss franc against the euro is no longer justified.”
The fallout led to volatile trading around the world. The Swiss franc spiked as much as 30% after the announcement and the Swiss are reported to have lost as much as $60 billion as market positions settled, which may be the single biggest daily loss in modern financial markets.
All Swiss government bill and bond yields out to 7 years are negative: pic.twitter.com/b4YCVSDFu7
— Jamie McGeever (@ReutersJamie) January 15, 2015
Thursday night, warning signs were reported by Zero Hedge that at least 4 foreign exchange trading firms (FXCM, Excel, Alpari, OANDA) saw massive surprise losses by clients, which can cause forex firms to fail if the shock is severe. The fallout is best explained by statements from New Zealand’s Excel Markets, which has folded.
And Excel Markets is done (as ForexLive’s Adam Button explains)… Forex broker Excel Markets calls it quits on SNB shocker
Clients of New Zealand forex broker Global Brokers NZ Ltd, which operates Excel Markets, have been told the company “can no longer meet regulatory minimum capitalization requirements of N$1,000,000 and will not be able to resume business.” Client positions will be closed within the next hour.
Here is the statement (the emphasis, bolding and caps is theirs):
The dramatic move on the Swiss franc fueled by the Swiss National Bank’s unexpected policy reversal of capping the Swiss franc against the euro has resulted in rare volatility and illiquidity. Both our primary and backup liquidity providers became unresponsive or illiquid for hours after the event. The majority of clients in a franc position were on the losing side and sustained losses amounting to far greater than their account equity. When a client cannot cover their losses it is passed onto us.
ALL OPEN POSITIONS MUST BE CLOSED BY 5PM NEW YORK TIME OR THEY WILL BE AUTOMATICALLY CLOSED AT THAT TIME. NEW POSITIONS CANNOT BE OPENED AS OF THIS TIME.ALL CLIENT FUNDS ARE IN SEGREGATED ACCOUNTS AND NEVER — USED FOR LP MARGINS. 100% OF POSITIVE CLIENT EQUITY OR BALANCE IS SAFE AND WITHDRAWABLE IMMEDIATELY.
Global Brokers NZ Ltd. STP’s 100% of order flow and has sustained a total loss of operating capital.GBL can no longer meet regulatory minimum capitalization requirements of N$1,000,000 and will not be able to resume business. Losses incurred on trades that could not be exited due to illiquidity were losses incurred directly with the liquidity provider and we do not have the ability to reimburse those. Please note the interbank market for francs was illiquid for hours after the event and no traders with an open franc position were able to close it for a significant period of time, at any broker.
News of the impact of this event on companies and traders is just beginning to come to light. As Directors and Shareholders we would like to offer our sincerest apologies for this devastating turn of events, and to thank you for being such a supportive group.
We ask that you place withdrawal requests for your account balance at your earliest convenience and allow for minor delays as our team begins to experience higher than usual service volumes.
In my opinion, any broker that uses ALL CAPS deserves whatever they get.
We’re encouraged that client funds are segregated. They won’t be the last to go under on this and we hope that everyone has been prudent with client money.
Friday, more losses were revealed as trading continued to be volatile.
Foreign exchange broker FXCM received a $300 million bailout Friday to continue normal operating procedures after losses because moves in the Swiss Franc left it near failure. The emergency funds from Leucadia National Corp, through Wall Street firm Jeffries “will permit FXCM to meet its regulatory-capital requirements and continue normal operations after yesterday’s loss of $225 million due to the unprecedented actions of the Swiss National Bank,” the two firms said in a statement.
The more unsettling part is that as many have noted, the Swiss decision was the first time in the last 2 years that a central bank surprised markets, even the International Monetary Fund director Christine Lagarde admitted being completely unaware before the announcement.
“This was a bit of a surprise,” IMF Managing Director Christine Lagarde said during a CNBC interview. “[SNB Chairman Thomas] Jordan did not contact me, I find it a bit surprising that he did not contact me.”
“I would hope it was communicated with colleagues from other central banks – I don’t know that it was.”
Of course it is surprising to her that a central bank would dare upset the international order of the coordinated global economic rescue
of the banking cartels by not telling other central bankers and financiers what their plans are before implementation.
To understand what has happened, one must be familiar with the environment that has been in place due to the ongoing series of crises in global capital markets since 2008.
The global economic crisis has been exploited for use as warfare of which the oil price wars and currency war are just part of the battleground for World War 3. These are both extensions of the strucutural problems in the global economy that were never fixed after the 2008 crisis. The inevitable momentum has continued in many forms which have been driven to the extremes by policies that were supposed to be the solution, mainly quantitative easing by the Federal Reserve and various bailouts.
The global currency war has been accelerating over the last 4 years as central bank activity has forced banks, hedge funds, pensions and other invested capital in to small baskets of choices if they want to remain profitable. This forced market activity causes mutations in global financial markets like the currency war and eventually the oil price crash. The crash is from downward price pressure on oil because of an economy that can’t support high prices due to lack of consumer demand as the temporary help of central bank policy becomes ineffective. The distinction is that the economics are ignored and the crash is largely blamed on geopolitical activity. That is a very simple express version for those not keeping up with what has happened.
2014 was marked with hundreds of warning signs that central bank stimulus was becoming increasingly ineffective, as many people predicted. Now that it has, one option that buys more time for financial markets would be for the European Central Bank to enable a quantitative easing program of its own, buying bonds to inject cash into the eurozone banking system to stimulate a recovery. This move was expected by many in finance as a last resort, the EU system has loopholes allowing it to proceed and the rules are being made up as they implement it. One sign of trouble is Greece, who’s banks need fresh bailouts and provisions are being made to exclude Greek bonds from the QE program because they are too risky. The entire charade is on edge at this point, but it has some breathing room and Greece, like others, can be sacrificed.
One thing that may be familiar is talk of the Russian ruble collapsing in the last few months and depending on the media source, it is said to be as a result of “isolation from the global community” in the form of sanctions from the United States and Europe becuase of Putin’s bad behavior in Ukraine. It is part economic warfare but it is part of the same wave that collapsed Venezuela’s economy, and (forced?) collectivist policies have led to an environment where the army is guarding food lines at supermarkets. Of course the geopolitical ramifications of being a major oil producing country which has been unfriendly to the US/West imperial expansion has helped economic warfare come to Venezuela also but the fact remains that the people of the country are suffering from a world of nearly complete financialization of everything. Evidence of this can be seen in the fact that Venezuelans are still suffering from a shortage of toilet paper along with the currency collapse. The financial markets keep climbing while the situation on the street deteriorates, like last January when the country’s markets were at all time highs in the middle of the food shortages.
As stated at the beginning, 2015 will be about self preservation.
To understand more about the oil crash, read Page 2.
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