Swiss Franc Eclipses the Euro

The decline in the euro after firming in Asia to almost $1.4350 was the dominant feature in the European session and into early in the North American session today. However it is now being eclipsed by developments in Hungary.

Specifically, Hungary's government and banks have reportedly reached an agreement to fix the CHF-HUF exchange rate for mortgages at 180, which is about 15% below prevailing prices. Swiss franc denominated mortgages were more popular than forint ones before they were banned. Reports suggest that some 90k homes in Hungary were overdue payments on Swiss franc loans at the end of 2010. This is about 25% more than the turnover of housing in Hungary last year, according to government data.

The strong demand for Swiss francs appears to be on ideas that the Hungarian banks need to buy Swiss as a hedge. Given the discussions in the euro zone about the private sector burden sharing and the reluctance on the part of the ECB and EU to do it before 2013, this agreement by Hungarian officials a way to make its banks share in the consequences of promoting the currency mismatch to its citizens.

The next key area in euro-Swiss is near CHF1.2400 the low from the end of last year, which had already been testing in mid-March. The dollar has tested support near CHF0.8750. A convincing break open the door to CHF0.8550-CHF0.8600.