EUR/CHF to parity?

Well that’s what the options market is pricing in.

If you look at the table below you can see that options markets are pricing in EURCHF below parity for 12 months time.

EURCHF

Now, CHF strength is a constant concern for the Swiss National Bank due to its large export market. A strong CHF harms Swiss exporters, so the SNB actively guards against a strong CHF. If the exchange rate falls to EURCHF 1.000, or looks like doing so, this will frustrate the SNB and their attempts to shield their exporters.

These options pricing above make sense of Thomas Jordan's recent comments. The chair of the SNB, Thomas Jordan, recently said that the SNB are making a 'substantial commitment regarding FX intervention and that they might cut interest rates even more. Remember the SNB already have negative interest rates. We have also seen growing evidence of SNB intervention in the FX markets from their last sight deposits for the period ending 8 May.

Now, Thomas Jordan has previously said that the SNB is not thinking of imposing a new minimum exchange rate. However, don't rule out a new minimum exchange rate for EURCHF indefinitely, as a strong CHF is a bad news for the Swiss.

So, here are some things to look out for that could prompt the SNB to act: 

  • A fast pace of CHF appreciation in the spot market, so if the EURCHF pair falls sharply.
  • The franc's real effective exchange rate.
  • The depth of deflation in the nation (-0.3% is already factored in for 2020 in its bulletin).
  • The strength and speed of inflows into the nations assets.

In summary, a fast and sharp rise in CHF strength could see the SNB move to act and support the EURCHF pair by buying euros in large volumes. This is definitely one area to watch for potential volatility.

 


 

Learn more about HYCM

 

High Risk Investment Warning: Contracts for Difference (‘CFDs’) are complex financial products that are traded on margin. Trading CFDs carries a high degree of risk. It is possible to lose all your capital. These products may not be suitable for everyone and you should ensure that you understand the risks involved. Seek independent expert advice if necessary and speculate only with funds that you can afford to lose. Please think carefully whether such trading suits you, taking into consideration all the relevant circumstances as well as your personal resources. We do not recommend clients posting their entire account balance to meet margin requirements. Clients can minimise their level of exposure by requesting a change in leverage limit. For more information please refer to HYCM’s Risk Disclosure.

Analysis feed

FXStreet Trading Signals now available!

Access to real-time signals, community and guidance now!


Latest Forex Analysis

Editors’ Picks

EUR/USD chops around amid end-of-month flows, ahead of Trump

EUR/USD is battling 1.11, close to the two-month highs amid choppy trading. Hopes for a fiscal boost in Europe and mixed satisfactory data have supported the currency pair. , Sino-American tensions are rising and investors await President Trump's China announcement.

EUR/USD News

GBP/USD advances amid US dollar weakness, shrugging off concerns

GBP/USD is trading above 1.23, edging higher amid US dollar weakness and Britain's gradual reopening. Intensifying Sino-American tensions and the Brexit impasse are ignored. 

GBP/USD News

Cryptocurrencies: $348M in matured derivatives boost the market

Futures and options contracts' expiration brings a wave of volatility to the crypto market. Ethereum takes advantage and attacks resistances in the market dominance chart, Bitcoin goes back. Ripple disappoints despite regaining the third place in market capitalization.

Read more

Canada's economy falls by 8.2% annualized in Q1, better than expected, USD/CAD shakes

The Canadian economy squeezed by an annualized rate of 8.2% in the first quarter of 2020, better than -10% expected. Quarterly, Gross Domestic Product (GDP) squeezed by 2.1%. Most of the downfall occurred in March, with a drop of 7.2%, better than 8.5% projected. 

Read more

WTI drops 4% and eyes $32 mark amid risk-off, weakening demand

The selling pressure around WTI (July futures on Nymex) accelerates following the break below the 33 level, as bears now target the 32 support zone heading into the key US macro data and US President Donald Trump’s response to the Hong Kong issue.

Oil News

Forex Majors

Cryptocurrencies

Signatures