Even if the Swiss authorities choose to do nothing in the near term, the mere threat of a currency peg has sent Swiss longs scurrying for cover as they tried to take profits before the unit reversed itself. We noted yesterday that "with the franc so grossly overbought the unit is vulnerable to short covering squeeze in USD/CHF and EUR/CHF as the shorts in those pairs have become increasingly complacent."
Today's astounding volatility is a testament to the fact that currency markets remain in turmoil as policymakers attempt to address the increasing distortions in foreign exchange markets due to the credit problems on both sides of the Atlantic.
After yesterday's huge selloff US equity markets are rebounding with DJIA attempting to recapture the 11K handle. Today's better than expected jobless claims which printed below the 400K barrier, dropping to a four month low, were a welcome piece of news for equity bulls looking for any signs of improvement in the US economy. If equity flows remain positive into the close, high beta FX should continue to inch higher as investor sentiment begin to improve. The EUR/USD which earlier in the session dropped to within a few points of the 1.4100 level on fears of further problems with French banks, has stabilized at 1.4200 and may target the 1.4250 level as the day progresses and no additional news hits the market.