Did the Swiss National Bank Show its Hand?

There is a suspicion in the foreign exchange market that the Swiss National Bank intervened forcefully yesterday, even if quietly, and may have been in today as well. The SNB rarely confirms intervention. Confirmation is often only available when the quarterly reserve figures are released.

Much to the surprise of the market, which thought Swiss franc's appreciation against the euro was a function of the SNB pulling back, learned that Q1 reserves rose sharply and its euro holdings rose by about 30 bln.

Last week, Switzerland reported trade figures that suggest the franc's strength may not be crimping exports and next week's CPI figures may give more evidence that deflationary forces have lessened. This, coupled with a steadier tone in the southern European bond markets, ease the SNB's concerns.

Swiss exports rose 1.4% in March, offsetting in full the revised Feb decline. Watches, which account for 6% of Switzerland's exports, saw a 30% rise in exports.

March CPI rose 1.4% from a year ago. It would not be surprising to see the April figures, due May 6th tick ease a bit from there, largely due to the base effect. Last April's 0.8% increase will drop out and likely be replaced by a 0.2 or 0.3% increase. Note though that it is not unusual for Swiss CPI figures to have an outsized move in the first month of a quarter.

The euro-franc cross has been confined to tight and uninspiring ranges since earlier in the month. Other crosses look more interesting. Sterling held the Chf1.64 support today. There is scope for a move back to the week's highs near CHF1.6670. The Australian dollar continues to march higher against the franc.

If one expects calmer tone in the European debt market to be short-lived and that the risk is that soft retail sales data from Norway and the uncertain economic outlook for Europe in general, may keep the Norges Bank on hold next week, more speculative accounts might want to look at a long CHF short krone positions. This is to pick the bottom of the month long downtrend. Stops should be placed below NOK5.45. The initial objective is NOK5.55 and then NOK5.60