The Swiss franc was the top performer this week, the euro lagged
The drop in EUR/CHF this week was partly about risk aversion but it was also about Italy. The political uncertainty as the League and 5-Star Movement try to forge a government has hurt Italian stocks and put a bid into the safe-haven Swiss franc, especially a leak that suggested the ECB would write off its Italian debt holdings. They later denied it but even considering defaulting or monetizing debt isn't the kind of thing that investors cheer.
The Swiss franc also got a lift from continued trouble in emerging markets. Currencies in Argentina, Turkey, South Africa and throughout Latin America were beaten up this week. All 24 emerging market currencies on my list lost ground to the US dollar (and Swiss franc).
In step with the theme of risk aversion, notice the underperformance of the yen. That's a significant quirk and it's happening because US Treasury yields have broken out or are near a breakout. Continuing that and weak equity market sentiment is an extremely delicate balance that's unlikely to last.
Finally, the EUR/CHF chart has been incredible. After touching above 1.20 but failing to hold it on a closing basis, the pair has fallen more than 250 pips.
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