Swiss franc: an expansive safe haven as euro parity nears

The endless Greek saga finally hit the Swiss market, writes London Capital Group analyst Ipek Ozkardeskaya in an exclusive article for Digital Look.

The rise in euro volatilities and the panic situation across the board pushed the investor crowd toward the Swiss franc – a safe island at the heart of the EU thundery.

Given its geographical and economical sensitivity to the Eurozone, Switzerland is certainly not the rational choice for investors running away from the EU storm.

The protective wall between Switzerland and its Eurozone neighbours is neither thick nor high enough to keep the wild market waves away from the Swiss safe harbour.

The country's safe haven reputation overrules however. The ideas of Swiss neutrality and the Swiss security outweigh its economic and financial exposure to the Eurozone.

In his speech in HEC Lausanne, the Swiss National Bank vice president Jean-Pierre Danthine had lamented his long-held complaint to the audience: ‘there is nothing I can do if people are read to pay to hold francs’. Switzerland on Tuesday sold 334m franc worth of 91-day bills at -1.05%.

The appetite for the Swiss franc has become an enduring headache for the SNB.

After in January being constrained to remove the 1.20 floor against the euro – simply because the heavy selling pressures in euro made it unsustainably costly for the SNB to swim against the natural flow – the introduction of negative rates did not suffice to push the thirsty investor back.

Following Monday’s euro unwind the SNB had no choice but to buy euros to keep the euro-franc at an unspoken band at close to the 1.05 marker.

Traders know the SNB is ready to fight back a renewed wave of inflow as Greece decidedly walks toward the euro exit door.

The euroswiss futures test the 101 mark, suggesting that the market is ready to absorb an additional 25 basis point cut should a potential Greek exit overwhelm the franc market.

While the pathway above 1.05 remains bumpy, the parity may be the next challenge for the euro-franc.