For the first time in fifteen months, the Swiss franc has broken higher against the euro, reversing its three-year slide against the common currency. At the same time it also risks upsetting thousands of Cypriots who in recent years have borrowed heavily in the Swiss currency to take advantage of the low interest rates.
The Swiss franc (CHF) was last trading at 1.6230 against the euro, having closed below the critical 200-day moving average for two successive days, normally a sign that the trend is reversing.
According to Financial Mirror calculations, the 200-day moving average on EUR/CHF is now at 1.6290 and if this level is not retained soon, a major down-move may start with catastrophic consequences for thousand of Cypriot borrowers in CHF. After hitting an all-time high of 1.6686 on July 24, 2007, the CHF has been correcting together with the yen amid expectations that the period of borrowing in cheap currencies and converting the proceeds into higher yielding currencies is coming to an end.
The last time the CHF breached its 200-day moving average downwards was in May 2006 and before that in November and December 2005. Since 2005, the CHF has been weakening steadily against the euro (and in turn the
In 2005, the range on EUR/CHF was 1.57-1.51, in 2006 the range was 1.6-1.55 while in the first eight months of 2007 the range has been 1.67-1.60.
The break below the 200-day moving average, if not reversed soon would herald a move towards the level of 1.5800, the three-year average. In percentage terms, that would mean a 4% move, which would more than wipe out the interest differential enjoyed by Cypriot borrowers in CHF.
A third of foreign currency loans in
Until recently, those who had borrowed in CHF, not only took advantage of 2.75% against borrowing in Cyprus pound and 1.50% against borrowing in euros, but they were also making additional money because of the steep and continued decline in the value of the Swiss franc against the CYP.
Since hitting an all-time low in mid-July, the CHF has been correcting and recently has scored major advances not only against the euro, but also against sterling and other high yielding currencies. The CHF is now trading at 2.3975 against sterling, well below 2.4140, the 200-day moving average.
The 200-day moving average is an important level since it tells investors regarding the direction in the trend, which as the trusted saying goes, “the trend is an investors’ best friend.â€
UBS analysts think it is only a matter of time before the CHF appreciates from its current strongly undervalued level against the EUR. Economic indicators such as consumer confidence and retail sales show that the economy is still stable and that there is no need for officials to step in and prevent the Swiss currency appreciating versus Europe, its largest trading partner.
