Euro/franc has room to test this year’s 1.2650 high

The prospects for a rise in the value of the euro against the Swiss franc are brightening and a move back towards the year’s high for the pair of 1.2650 is not out of the question.

By Neal Kimberley (CURRENCIES)

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Published: Tue 20 Aug 2013, 1:02 AM

Last updated: Tue 7 Apr 2015, 4:48 PM

First, there is absolutely no weakening in the resolve of the Swiss National Bank, or SNB, to retain a cap to ensure the Swiss franc does not strengthen beyond 1.20 to the euro.

“At the moment, the cap on the franc is the top priority,” SNB vice-chairman Jean-Pierre Danthine said on Sunday.

SNB board member Fritz Zurbruegg echoed this idea on Wednesday, saying “the minimum level will remain in place as long as necessary” even though exchange rate tension had eased with the euro/Swiss franc trading at 1.2300.

The franc remains at a high level against the euro despite signs of recovery in European economies, Zurbruegg told the Corriere Del Ticino daily.

These “encouraging signs” could be the catalyst for a firming of the euro against the Swiss franc. After all, a lot of the demand for the franc was caused by an aversion to economic problems evident in the eurozone.

German 10-year government bond yields notably hit their highest since April 2012 last Thursday, a day after data showed that the eurozone emerged from an 18-month long recession in the second quarter.

That is not to say the eurozone is again in robust economic health but, with even bailed-out Portugal showing some signs of recovery, traders may decide that the logic of selling the euro against the Swiss franc is far less compelling.

A rise in the euro to 1.2650 francs, the high seen on May 22, does not seem unreasonable. — Reuters

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