EUR/CHF Outlook: Beware of SNB Currency Intervention

CHF Price Analysis and Talking Points:

• Beware of SNB FX Intervention

• Swiss CPI Heading Lower, ECB Looking at Fresh Stimulus

See our quarterly FX forecast to learn what will drive prices throughout Q3!

Beware of SNB FX Intervention

Concerns are mounting for the SNB who are witnessing a further appreciation in the Swiss Franc, which trades at a fresh 2yr high against the Euro at 1.0938. Safe haven flows stemming from President Trump‘s surprise announcement to place an additional 10% worth of tariffs on $300bln worth of Chinese goods had been the latest catalyst. Consequently, raising the risk of potential SNB intervention in order to weaken the currency in light of the firm appreciation. Of note, last week, EURCHF broke below 1.1000, which in turn saw the SNB’s sight deposits increase at the fastest rate since July 2017. Therefore, next weeks release may be somewhat telling as to whether the SNB will continue to step in.

Source: Refinitiv

Swiss CPI Heading Lower, ECB Looking at Fresh Stimulus

Despite having the lowest interest rates at -0.75%, Swiss inflation continues to head lower with the yearly rate at 0.3%, the lowest since July 2017. This accompanied with a strengthening currency does not bode well for the inflation outlook. That said, with the ECB looking at fresh stimulus, likely to be announced at the September meeting, questions are being raised as to whether the SNB can move in lockstep given that interest rates are deeply negative, as such, there may be some limits to what the SNB can actually do in response to ECB easing. Therefore, as we mentioned previously, an equity market sell-off on trade war fears raises the risk of an appreciation in CHF.

EURCHF Price Chart: Daily Time Frame (Aug 15 – Aug 19)