Monday April 18, 2005 - 09:55:40 GMT
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INVESTICA Ltd - www.investica.co.uk
Risk aversion supports Swiss franc
The yield considerations will continue to expose the Swiss currency to selling pressure. For now, however, rising risk aversion is likely to be the more important factor with increased market concerns over falling US stock prices, growth doubts and rising yield spreads. There is a small, but growing possibility of strong franc buying, especially as there is still a net short speculative position. Overall, the dollar offers very little value above the 1.21 level against the Swiss currency and could weaken to as far as 1.1820 over the next 48 hours. The franc has the potential for a move to 1.5450 and possibly 1.5380 against the Euro.
The dollar retreated sharply against the Swiss franc to lows below 1.19 and the Swiss currency also gained against the Euro with a move to 1.5470 in early Europe on Monday.
The potential demand for defensive currencies will be very important in the near term. There have been significant falls on Wall Street, rising corporate credit spreads and higher emerging-market yield spreads. In this environment, risk aversion is liable to increase and this will offer near-term support to the Swiss currency. There will be a small risk of sharp franc gains, especially if global equity markets fall throughout this week.
The latest IMM positioning data recorded an increase in short franc positions of close to 4,000 contracts in the latest week, increasing the short position to close to 23,000 contracts. This will maintain the risk of a covering of short franc positions and will certainly lessen the potential for dollar gains.
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