For the eighth trading day in a row, EUR/CHF has failed to rally. The Swiss Franc even ended the day at a fresh record high against the euro as traders test the resolve of the Swiss National Bank. This has led many currency traders to wonder: What is the SNB waiting for? Why haven’t they intervened?

The problem is that even though the central bank has been warning about intervention, they have also been talking about raising interest rates. Over the past year, a lot of traders have sold Swiss francs as a funding currency because of its low yield and now the prospect of a rate hike will force them to unwind their short CHF positions. Although intervention risk is exceptionally high at this time, the reason why the SNB has not intervened yet is because we are in a very different place now than in March 2009.

When the global financial crisis hit, there was a tremendous amount of deleveraging in which investors bought back Francs and closed their positions. Many Swiss banks also reduced their balance sheets, leading to downside pressure on EUR/CHF. In fact, net capital flow into Switzerland hit a record high last year. As a result, EUR/CHF fell aggressively at a time when the financial crisis was still unfolding, forcing the SNB to step into the market to weaken the Franc. The central bank intervened three times last year from what I can tell – in March, June and September. Since then, the global economy has stabilized, Switzerland came out of recession and the economy is improving.

With less to fear, the SNB has remained out of the market opting for verbal versus physical intervention. The trade surplus is a lot higher than last year and exports remain at healthy levels, reducing the need for intervention. Forex traders love to test the resolve of a central bank and I continue to expect them to do so until the SNB actually steps in. Everyone has an uncle point and for the SNB there is no question that we are nearing that level but as we have seen in the recent price action, betting on a move by the central bank can require deep pockets.