The Swiss KOF index of leading indicators printed at 1.57 versus 1.50 eyed as it recorded its seventh consecutive monthly increase indicating that the Swiss economy continues to expand under the currency peg regime. It has been nearly a year since the Swiss National Bank intervened in the currency markets setting a floor in the EUR/CHF exchange rate at 1.2000 and during that time the export driven Swiss economy has continued to perform well as exchange rate volatility disappeared.

The KOF institute noted that all three modules including “core GDP”, construction and banking all showed positive developments indicating that the Swiss economy will continue to expand in the foreseeable future. The Swiss economy has been an oasis of calm amidst a sea of EZ turbulence as the country has enjoyed steady albeit unspectacular growth this year along with ultra low unemployment, while the rest of the continent has been mired in a chronic sovereign debt crisis.

The positive economic news today validates the interventionist policies of the SNB but also raises the question of how long can the SNB peg last. The EURCHF has been contained in an ultra tight range of 20 points for more than 5 months, but has shown no impulse to move higher as it remains just a few pips above the key 1.2000 level. The price action suggests that the market remains skeptical about the resolution of the EZ crisis and continues to view the Swiss franc as one the strongest safe havens in the currency market.

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