Focus FX Currency Forecast

19 Ianuarie 2011

RAIFFEISEN BANK S.A.

 

EUR/CHF: 1.283 - 1.30 (March)

1.24, the strongest rate ever registered for the Swiss franc against the euro. One interesting aspect of this is that this appreciation hardly had anything to do with the franc's role as a safe haven currency. Following the problems in Ireland, the European sovereign debt crisis quickly settled down and economic activity continues to look good at the global level as well. For example, the price of gold, which is also a safe haven asset, is currently at USD 1,386/oz, which is lower than it was in November 2010. The Swiss franc, on the other hand, is still trading at levels of EUR/ CHF 1.28, which is stronger than in the autumn of 2010. Consequently, in our view, the strength of the franc is currently pricing in too much pessimism. We project rates of EUR/CHF 1.30 and higher in the first quarter of 2011 in particular. One thing is certain though: due to the fundamental weakness of the euro, many investors are seeking long-term alternatives. Thanks to the solid economic situation in Switzerland, the Swiss franc appears to be just what they are looking for and will likely thus remain strong for the foreseeable future. Hence, it is unlikely that the Swiss franc will return to levels over EUR/CHF 1.40, which would correspond to a fair level on the basis of purchasing power parity. Because if the European sovereign debt crisis escalates again or there is actually a broad-based reduction in central banks' strategic EUR reserves, exchange rates of EUR/CHF 1.10 and below cannot be ruled out. Accordingly, parties with CHF loans should consider conversion into EUR at rates around EUR/CHF 1.32-1.35.

 

Trading Ideas

Note: This list contains only the strongest trading ideas for the markets that we cover. Therefore not every market forecast that implies a buy recommendation is also listed as a trading idea! Trading ideas may also differ from our quarterly forecasts. as the time horizon can be different. The time horizon of the trade is at least two weeks, but not more than 3 months.

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