SNB: don't expect a new EURCHF ceiling any time soon

The Swiss National Bank (SNB) concluded its latest meeting today with no new policy decisions, but a hefty dose of fresh rhetoric. Some in the market had expected the SNB to implement a new peg, potentially to 1.10 in EURCHF, to limit swissie strength, however they were disappointed. The SNB didn’t change rates, deposit rates are already at -0.75%, but they did say that they would intervene directly in the FX market to stem swissie strength, if necessary.

Highlights from today’s meeting include:

• SNB will see over time how to adjust policy tools.

• It has dramatically reduced its inflation forecast: it was cut by 1% to -1.1% for 2015, and 0.5% in 2016.

• Inflation won’t return to positive territory until 2017

• Jordan said that Switzerland had to accept a period of deflation in the short term.

• The SNB believes that the CHF is overvalued.

• Jordan said that the SNB would have lost its credibility if it had kept the EURCHF cap.

The last point suggests to us that the SNB is in no hurry to implement a new peg and instead will stick with FX intervention to limit swissie strength in the medium term.

Although Jordan said that the bank will look at “other measures “, he also said that the bank has to see “over time” whether monetary policy tools need to be adjusted. He added that the SNB went “very far” when they cut the deposit rate by 0.75 basis points into negative territory, and he didn’t sound like he was in a hurry to cut rates further.

Overall, we think that the SNB is on hold for the foreseeable future and won’t actively pin down the currency with any long term policies, apart from intermittent FX intervention, in the coming months. But even intervention may be limited, for now the SNB may not feel like they need to take any extra measures to limit franc strength, the trade weighted CHF is 10% below its peak in January, and USDCHF is only 300 pips away from its pre-January 15th high of 1.0200. We continue to think that even after the post FOMC slip in USDCHF, the swissie will continue to fall vs. the dollar over the coming months.

Technical view: EURCHF

EURCHF is more of a challenge for the Swiss authorities as the single currency remains 10% below its January 15th peak and has not been able to break above the 26th Feb high just below 1.08.

The decision by the SNB to remain on hold on Thursday, sent this pair below key resistance at 1.06, ahead of this meeting the market had been as high as 1.0692. This pair remains firmly in its declining channel, an hourly support lies at 1.0515, see chart below. We continue to think that the fundamentals support limited upside for EURCHF, with 1.0700 and then 1.0795 (26th Feb high) acting as stiff levels of resistance in the medium-term.