Swiss Franc: Something Tells Us More Problems Underway

As we all know by now, Swiss authorities announced Sunday that UBS is looking to bring in Swiss bank Credit Suisse as part of a massive merger aimed at avoiding further turmoil in the regional and global banking market. UBS announced it would pay $3.2 billion 167 years ago, while the government announced that UBS would also suffer an initial loss of $5.4 billion from the sale of derivatives and other risky assets.

The deal, however, involves an interest rate increase in the form of three liquidity transactions and loans, as well as the promise of closing interest rates of up to CHF9 million the size of the takeover loss. The total support of 259 million francs is equivalent to a third of the total economic output, which was 771 billion francs last year.

Credit Suisse has already used the Swiss National Bank's (SNB) Emergency Disaster Relief Scheme. Credit Suisse announced last Wednesday that it was pursuing 50 million francs from the scheme that provide financing against collateral such as mortgages and securities. By the technical time, as long as the bank has more funds, it can attract such funding. Central Bank data on Monday showed that Credit Suisse has likely already gained access to the fund. In addition to this, the Swiss National Bank of Voluntary Associations has an emergency liquidity loan of up to CHF 100 billion. This loan is secured against a default.

The first support tranche allows Credit Suisse to raise another 100 million francs of funding through the government's liquidity support program, which explicitly stipulates a funding cap.

Meanwhile, in terms of future scenarios for swiss franc, although right now nothing indicates anything out of range, the turbulence engulfing both CHFUSD and CHFEUR is likely to intensify for as long as the Swiss financial authorities remain in limbo regarding maximum allowed amonth to rescue the country’s financial system in order to maintain good standing of Swiss franc. Most traders are poised to stay on the sidelines ahead of this week’s Wednesday's Fed FOMC meeting, as the most important question will be whether the Fed will stick to its relentless hawkish tone, with so many concerns about the global banking system being on the brink.

At this point, Switzerland is the epicenter of so many paramount problems, but something tells us even more problems are underway. That's why we need to keep a close eye on the USD, and it might be worth noting that we may still eye a consolidation zone above the 1.10 level. The long-term CHFUSD charts show the 1.10 level as a solid support for the currency, so one has to assume there is a lot of "sticky market memory" in this area.