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Foreign Exchange

FX research roundup 1: EUR/CHF back on a 1.40 handle

EUR/CHF has almost completely retraced the intervention-driven spike of a couple of weeks ago and while Swiss National Bank president Philipp Hildebrand gave few clues this morning – “I have no doubt that European authorities will do everything they can to protect the euro,” he said – there are some commentators willing to point the way.

BNP Paribas admits that the 1.4000 level is once again in focus and “any signs that the SNB is softening its tone towards intervention will trigger a sharper move lower” but “we believe that it is still too early for the SNB to step aside”.

Morgan Stanley’s FX Pulse is quite certain the SNB will eventually have to give way: The Swiss economy “is performing well with leading indicators suggesting that interest rates may need to rise some time soon. Against this background the SNB’s policy of preventing CHF appreciation looks unsustainable and we suspect it will allow the franc to strengthen slowly against the euro later in 2010... Swiss President Doris Leuthard’s recent comments that the euro proportion of [Swiss FX] reserves has increased to 52% with book losses of €5 billion might suggest the SNB will become increasingly reluctant to take further losses on its holding and build up FX reserves further.”

Yes, just as the rest of the world’s central banks are questioning their euro holdings, the SNB is building its share. I do like contrarians but this doesn’t seem to have much to recommend it.

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