Forex at Forexpf.Ru

Interview given to Pro Finance by Martin McMahon, currency strategist at Credit Suisse 24.01.2008.

The Asian session show that the market has calmed down and the volatility is now lower. Do you think the situation has really stabilized?

Yesterday's actions in the stock market during American session and trade dynamics in Asia seem positive in the short-term, and we can see something like risk assets rally and lower volatility, in particular, taking into account coming FOMC meeting on rates, which is held next weak. But we suppose that market participants don't know all negative news concerning credit market and global economy perspectives, and current improvements are temporary. We expect some correction but in general see potential for further stock market downtrend and continued Japanese yen and Swiss frank strength. We believe correlation between the stock and currency market dynamics will remain, in particular, yen and franc will continue to move in tandem with the equity market.

How do you think changes in global economy perspectives will influence the evaluation of Swiss economy prospects?

Small Swiss economy can't exist in isolation from the rest of the world, and if the Eurozone economy will continue to slow down, it will affect the economy and, in particular, the export to Eurozone countries. We believe that Eurozone economy slowdown will eventually force ECB to cut interest rates, which can be expected in summer. However we expect that Swiss National Bank will be among last to start to monetary policy easing, partially due to the fact that it was the last to start its tightening. We also think that SNB rate won't change during this year.

So you look for the Swiss franc to continue appreciation?

Yes, we believe in Swiss franc and think that it will grow against most of the currencies in the nearest 3-6 months, until the situation in financial markets changes for the better. Still, in the short run there is a chance of some correction taking into account that it is quite natural after the extreme sell-out in a lot of markets. EUR/CHF may correct higher but recovery attempts will be limited and the pair is unlikely to rise higher than 1.60/62. We definitely don't expect recovery to the levels that we saw in the end of the last year, besides we think that any growth attempts of EUR/CHF will be regarded as selling opprotunity. The next wave of sales is likely to bring the pair to 1.58 and in our opinion the rate will come close to 1.55 by the middle of this year.

How do you estimate EUR/USD prospects in the nearest future?

In the short run EUR/USD is likely to stay in the range 1.45/1.50. At the moment the pair is between to fires: on the one hand the FED is aggressively cutting the rates and spot rates in USA reduce the risk of US economy slowdown and recession. On the other hand EUR/USD is under pressure due to sell off in the stock market, moreover here we can see repatriation of capital in dollar accounts from emerging markets and stock markets. Meanwhile we continue to think that euro/dollar has some potential for growth over 1.50 as the FED is aggressively cutting the rates and spot rates seem less favourable for dollar. In our opinion there is still a possibility of EUR/USD upward movement, taking into account temporary lag which is likely to appear between FOMC decisions and the moment when ECB will follow the FED's example. Shift in ECB position in favour of more neutral approach will increase risks for this scenario. However we think that such movement is still possible, thought not very likely.

Mr. McMahon was interviewed by Dmitry Khrabrov ProFinanceService.com