Investors should buy the euro against the Swiss franc in a bet the Swiss National Bank will maintain its ceiling of 1.20 against the 17-nation currency, according to Lloyds Capital Markets. The SNB on Sept. 6 imposed the ceiling versus the euro and resumed purchases of foreign currencies to protect exports and ward off the risk of recession. The rate has been trending down since early December, when it touched 1.2444 francs, and Lloyds said signs of economic weakness and a lack of inflation will help the SNB maintain the ceiling. “That the SNB have unlimited supply of francs makes their commitment credible as long as they don’t feel it is having negative economic effects,� Adrian Schmidt and Jennifer Hau, currency strategists at Lloyds in London, wrote in a note to investors. “Swiss inflation is negative, so there should be little concern of inflationary impact.� The Lloyds analysts recommended buying three-month forward contacts on the euro against the franc at 1.2068, with a target of gaining to 1.2325. They suggested a stop-loss order at 1.990 to protect investors if the market moves against the trade. The euro was little changed Thursday, trading at 1.2083 francs. The Zurich-based central bank has spent relatively little defending the ceiling rate in comparison to a failed 2009 effort. Data compiled by Bloomberg shows that the percentage of the SNB’s total holdings in terms of euros had declined through the first three quarters of 2011. In 2009, the SNB established a ceiling at 1.50. The inability to maintain the rate was attributed to the Greek crisis and that fair value was close 1.40, according to the analysts. The 1.20 line is “more appropriate� than the failed ceiling in 2009 so “there is more chance of success this time around,� according to the report. To contact the reporter on this story: Austen Sherman in New York at asherman18@bloomberg.net To contact the editor responsible for this story: Dave Liedtka at dliedtka@bloomberg.net

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