Mainly in reaction to rising expectations of the ECB considering additional policy action, EUR/CHF approached levels close to the 1.20 floor. Although additional CHF upside cannot be excluded in the short-term, we do not expect the franc entering a new appreciation trend.
While the SNB is prepared to defend the CHF cap, they remain in a position to introduce additional policy measures such as negative interest rates too. This is especially true as the strong CHF keeps monetary conditions tight. This in turn is keeping any inflation risk extraordinarily low.
As a result to the above outlined conditions we advise against buying the CHF around the current levels. On the contrary, we stay in favour of selling rallies against higher yielders such as the AUD.
In terms of data, investors’ focus shifts to this week’s release of the Kof leading indicator. However, domestic data is unlikely to have any major impact on SNB monetary policy expectations and the currency.
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