CREDIT concerns continue to preoccupy FX traders, and as officials on both sides of the Atlantic struggle to put forth a credible fiscal policy to appease the markets, the Swiss franc remains the currency of choice for those seeking the safety of sound money. The Swissie has become the pox-on-both-your-houses trade as investors seek to avoid the risk of holding either the dollar or the euro.

Little wonder that at the start of this week’s trade the Swiss franc hit fresh record highs against both the euro and the greenback, before bargain hunters swooped in. With the economic calendar relatively barren this week, the focus will remain on politics, as EU finance ministers hold an emergency meeting on Greece this Thursday, and US lawmakers try to find a compromise on the debt ceiling by Friday.

European officials already appear to be backtracking from their categorical refusal to accept any type of default by Greece, with Austria’s central bank governor Ewald Nowotny stating on Tuesday that, “there are some proposals that deal with a very short-lived selective default situation that would not really have major negative consequences.” His position differs starkly from European Central Bank (ECB) chief Jean-Claude Trichet’s comments earlier this month. It reflects the ECB’s growing acceptance of the fact that Greece is unable to service its debts as they stand now and will inevitably require some sort of restructuring in the near future.

If the European summit this Thursday produces a meaningful overhaul of the stability fund and some possible restructuring of Greek debts, the short covering rally in risk FX could persist into the weekend, especially if the US reaches a compromise on the debt ceiling issue. Having walked to the precipice of a credit collapse, fiscal officials on both sides of the Atlantic are working feverishly this week to calm the markets. Yet the structural problems persist, and the Swissie will likely set fresh highs as the year progresses. For now dollar-Swissie at SFr0.8000 is the critical line for risk. If the pair breaks below that barrier, it will signal more panic in the markets.