Monday December 13, 2004 - 10:57:47 GMT
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INVESTICA Ltd - www.investica.co.uk
Rate gap may unsettle Swiss franc
The trends in short-term interest rates are likely to weaken the franc slightly this week. There is also an increased risk that the Swiss franc will be seen as the most attractive currency to use as a funding currency. Overall, the dollar should be able to find near-term support close to the 1.1550 level, but will struggle to strengthen beyond 1.1680. The franc is liable to weaken to the 1.5380 level against the Euro.
The US dollar was unable to hold gains above the 1.1650 level against the Swiss currency and it weakened back to 1.1550 against the Swiss currency in early Europe on Monday. The franc weakened to 1.5355 against the Euro.
The Swiss National Bank will meet on Thursday and there is an increasing chance that rates will be left on hold at 0.75%. The widening gap between US and Swiss short-term rates should offer the US currency some support as it will increase the chance that funding trades will be financed through the Swiss currency.
The latest IMM data reported a decline in long franc positions of close to 3,000 in the latest week, but the net long position was still around 36,000 contracts. There will be further pressure for a correction of long franc positions and this should offer the dollar some support.
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