Friday, June 24, 2011

Today's M^3 - Swiss Franc Strengthens Over 4% vs the USD in a Month

Over the past 30 days the Swiss Franc strengthened 4.7% vs the USD, by far the best performance (or worst if you're the Swiss National Bank) out of all currencies and thus making it the subject of today's major market move post. The next best performers were the Norwegian Kroner, the Brazilian Real and the Colombian Peso, all coming in at 2.4%.

The Swiss Franc continues to be popular as a safe haven trade to escape all of the Euro turmoil. We mentioned the Swiss Franc previously back on June 6 and the USDCHF is at about the same level it was back then (very close to the 2011 low).

One notable difference between now and earlier in the month is that the USD has strengthened somewhat (DXY went from 73.5 to 75.5) so that means that the CHF has strengthened even more relative to other currencies. In order to reduce the amount of data we have to gather and store, we only track currencies relative to the USD. Then one just has to use some basic math to figure out the other crosses. If the USDCHF is down 4.7% and the USDEUR is up 1% then the EURCHF is down 5.7% (if that's not the case then you've found a great arbitrage opportunity).

The Euro set a record for weakness vs. the Swiss Franc today despite the claims of the announced (2nd) bailout for Greece. From the wsj:
"There are concerns over contagion since Italy's economy is very weak and also over the lack of transparency in the banking sector," Peter Rosenstreich, associate director and chief market analyst with Switzerland's Swissquote Bank SA, said. "Without a total and credible solution to the Greek and [European Union] sovereign debt crisis, all EU nations are susceptible to sudden exodus of confidence and capital."

The Greek parliament still has to vote next week on the most recent version of the austerity program. Even if it passes by them, the general population may issue their own veto in a form much different, and more violent, than a ballot. On the remote possibility that the ECB and euro pols achieve the best possible outcome for Greece, I still don't see how the market doesn't shift its focus on to the next of the PIIGS (most likely Portugal). The only way the bankers had any shot at halting the momentum of increasing bond rates was to deliver, without a lot of deliberation, a forceful, convincing and universally supported plan. The fact that this is dragging on demonstrates a declining resolve, a resolve that is not going to get any stronger when the next debt ridden basket case is brought to the forefront.

(Click on the images for a larger view.
Click here for the current performance of currency crosses.
Click here for the current USDCHF chart.)

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