Today’s Comment
The Swiss franc again climbed slightly higher against EUR in yesterday’s European trade since the market is apparently testing the pain threshold of the SNB. Last week, the central bank pointed out that it still intends to prevent any excess strengthening of the currency, but since then CHF has strengthened somewhat against EUR, and since the SNB has apparently been invisible in the market, we have seen growing uncertainty about the trading pattern of the central bank. Therefore, the market had been looking forward to a speech by the SNB member, Jean-Pierre Danthine, yesterday evening since it was hoped that he might shed some light on the strategy of the SNB. Danthine, did not succeed in putting a damper on the uncertainty – rather the opposite! He stated that interest rates cannot remain ultra low forever, but that the timing as to when the tightening process will be initiated is a difficult question for the SNB. This immediately sent up CHF and the bottom of EUR/CHF after 11 September 2001 came under heavy fire. Since we point out that EUR/CHF is now in equilibrium with respect to purchasing power (see graph) and since it is only a week since the SNB repeated its promise to prevent any excess strengthening of CHF, we so far maintain our expectations of the Swiss franc. In addition, we must also underline that uncertainty is extremely high at the moment. If the levels around 143 of EUR/CHF (corresponding to the bottom just after the Lehman collapse in the autumn of 2008) are breached, there is – technically – room for a further strengthening of CHF.
EUR was generally under pressure for most of the trading session yesterday. Yet again the Greek story was lurking in the wings since an unnamed Greek civil servant was said to have stated that the Greek authorities are increasingly bearish about the possibilities of receiving a commitment of financial assistance in connection with the EU summit meeting this spring which will take place in Brussels next week (beginning on Thursday 25 March). Therefore, we are beginning to see speculations in the market that the next step for Greece may be to apply for a helping hand from the IMF, and this has contributed to putting EUR under pressure.
Today’s Key Events
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08:00 Producer prices (DEM)
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16:50 Speech by Greenspan (USD)
Saturday
- 14:00 Speech by Fed’s Bernanke (USD)
Today’s Chart – Purchasing power parity, EUR/CHF
