One of the more remarkable developments during January was the relatively strong performance of the traditional safe-haven currencies, principally the yen and Swiss franc. We wrote about this during the course of last month, but the Swissie is particularly under the spotlight, given the proximity of EUR/CHF to the 1.20 floor imposed by the SNB last September. The Swissie only needs to appreciate another 0.5% vs. the euro to reach the 1.20 level, so the market is becoming increasingly nervous of further intervention by the central bank. The remarkable thing is that this has come at a time when the euro has been subject to some fairly severe short-squeezes, a function of the stretched short positions which lie beneath (see comments below). Once positioning becomes more neutral on the euro the SNB is likely to have an even tougher time defending the line in the sand it has drawn. Bear in mind also that creating so much liquidity is not a costless exercise in terms of its impact on the domestic economy. At some point in the not too distant future things could get rather messy for the Swissie and for the SNB in particular.
Also in today's Daily Forex Brief:
- The ECB pressure on peripherals
- Seeking data justification
- A merciless euro short-squeez