Focus FX Weekly

20 August 2010

RAIFFEISEN BANK S.A.

 

EUR/CHF: 1.335 - 1.32 (September)

The Swiss franc profited doubly from the market developments last week. On the one hand, the euro lost against most of the major currencies (general weakness), and global risk aversion rose again somewhat on the other. There is currently a great deal of uncertainty as to whether the coming economic slowdown will bring a new recession (double dip), or just lower growth rates. We don't expect a double dip, but we also don't expect to see a clear answer to this question in the next few months. Thus, the financial markets will be prone to carefully weighing every bit of new information,and this is likely to cause considerable volatility for risky asset classes (stocks) and also sentiment-driven currencies like the Swiss franc. As the robust growth of the Swiss economy is supportive of a strong franc (the first key interest rate hikes will already come in December 2010), we advise using rate swings towards EUR/CHF 1.40 to bet on a stronger franc (EUR/CHF 1.32 and lower). We are already implementing this strategy successfully with our trading idea "sell EUR/CHF" (buy francs). As a large share of the CHF appreciation that we are expecting has already happened (September target: EUR/CHF 1.32) and we would prefer to use any correction to enter into new positions rather than waiting things out, we are closing our trading idea "sell EUR/CHF" early. Opened at: 1.365; closed at: 1.339; performance: 1.87%.

Analyst: Ingo Jungwirthingo.jungwirth@raiffeisenresearch.at

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