Sunday, January 25, 2015

Euro at 10-year low on Greek election | Eastern Europe Swiss franc mortgage woes

As the result of the Greek election was known (The favourite, the radical Syriza party, has won) at the start of the Asian session last night (GMT time), there was a knee-jerk reaction at the open, which brought the Euro as low as 1.1098 to the US dollar. This is the lowest the Single currency has been since September of 2003.

The gap that was created at the open of the Asian session was subsequently filled (the Euro has recovered somewhat) but there could be more falls in prospect when the London and North American sessions come on stream later today. Important support levels have been breached on a continuous basis. As can be seen in the chart above, the 200-month Exponential Moving Average, which had successfully filled this role in 2010 and 2012, is now very much in the rear-view mirror as far as the EURUSD pair is concerned.

Eastern Europe Swiss franc mortgage woes

While we are conscious that we live in interesting times as far as currency exchange rates are concerned, spare a thought for the unfortunate mortgagees in Eastern Europe who were persuaded, during the boom years prior to the Global Financial Crisis, to take out their house loans in Swiss francs. At that time the Swiss authorities were at the stage where their efforts to limit the appreciation of their currency were focussed on reducing interest rates in Switzerland. This made it look like a good idea to obtain loans in francs, as the cost of servicing them looked very reasonable. No doubt some of this saving was harvested by the financial intermediaries who arranged the loans.

Since then, with the extraordinary strengthening of the Swissie, the value of these loans in the local currencies of Poland, Romania and Hungary (Zloty, Leu and Forint respectively) have gone through the roof. House owners in these countries must convert their repayments to the Swiss currency every month. At least, in Hungary, whether by good luck or good judgement, the government decided, late last year, to convert all of these mortgages to the Forint. This made mortgagees take a one-off hit, but insulated them, in the event, from last week’s Swiss National Bank bombshell.

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