Trade ideas: Recent CHF strength largely driven by Turkey crisis - What's next for EURCHF?

Recent CHF strength seems to be largely driven by the crisis in Turkey related to the Lira currency. Investors have flocked to the Franc on fears that Turkey's crisis could spill over into Europe and the rest of the world. Some European banks are exposed to the Lira and further depreciation could cause bigger problems for the wider EU area.

Hence, the Swiss currency (CHF) has been among the strongest major currencies lately due to its safe-haven status as both Turkish and EU investors are looking for shelter in such turbulent times. But how long can this CHF strength last?

Massive depreciation of CHF (EURCHF rebounds) could follow in the event of de-escalation of Turkey's crisis. On the contrary, if the situation worsens it will likely put further downside pressure on EURCHF.

Bearish pressures on EURCHF could last for a while, especially for as long as fears for European banks suffering from TRY depreciation exist. The SNB, however, would likely try to fight the bearish pressures in EURCHF which they can do by intervening in the Fx market or introducing changes to monetary policy. 

Further depreciation of EURCHF around the 1.1200 level and below would increase the odds for the SNB to intervene. 1.1000 particularly looks as an important line in the sand below which the Swiss central bank would lose its tolerance.

For the moment wait and see is the best approach as well as watching the price action behavior around the key levels such as 1.1200 and 1.1000 and for any possible signs that the SNB is doing something to weaken the Franc.

All in all, it appears it’s too early to consider entering or adding to EURCHF longs. Some improvement in the situation in Turkey, as well as signs that the SNB is ready to help the Franc to weaken, would provide stronger confidence for entering long EURCHF.

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