Forex Flash: USD/CHF could reach parity at minimum – UBS

FXstreet.com (Barcelona) - According to the UBS Research Team, “In coming to terms with reality, the Eurozone crisis simply hasn't abated. However, last year's commitment by the European Central Bank to buy government bonds through Outright Monetary Transactions has cut the risk of a member state going bust. That has reduced the attractiveness of the franc as a hedge against the Eurozone breaking up.”

In particular, the Swiss National Bank remains committed to capping the franc at 1.2000 against the euro and with Switzerland still experiencing deflation, the SNB warns it is ready to take further measures. In contrast, the Federal Reserve may become the first major central bank to start exiting unconventional monetary policy. That prospect will encourage investors to cut short USD/CHF positions.

Fourth, the Swiss franc remains a proxy for the old Deutsche mark given Switzerland's strong trading links with its northern neighbor. As fears have grown about Germany's recovery stalling this year, the franc has suffered. In 2013 Switzerland is still forecast to run a huge current account surplus of 12% of GDP according to the IMF. That will provide support to the franc. But in a reflationary world the high historic valuations of the franc against the dollar and euro are at risk. We expect the USD/CHF to reach parity at a minimum.