CHF appears well placed to extend its advance in the near-term – MUFG

Analysts at MUFG Bank, point out that the Swiss franc has strengthened alongside the price of gold, perhaps reflecting debasement fears. They argue market participants are also questioning Swiss National Bank’s appetite for maintaining negative rates and intervening to dampen CHF strength.

Key Quotes:

“Market participants are also questioning whether the SNB will still has the same appetite to continue intervening in the FX market to dampen CHF strength. It follows the announcement earlier this week from the US Treasury that it has placed Switzerland on their currency “watch list”, and recommended that the Swiss government boosts domestic demand through looser fiscal policy. The market is now testing our assumption that the SNB is unlikely to materially alter their intervention operations.”

“The performance of the CHF has become more closely correlated with the price of gold over the last six to nine months. It would be hard to argue that the CHF and gold have both strengthened over this period on the back of safe haven flows. So we suspect the joint outperformance could reflect concerns over the ongoing shift to looser monetary policies overseas and currency debasement risk. We believe that the Fed’s decision to resume significant balance sheet expansion towards the end of last year has helped to fuel the latest leg higher for gold and the CHF.”

“The next key support level for EUR/CHF comes in at just above 1.0600 where the lows from June 2016 and early 2017 are located. Similarly, for USD/CHF the September 2018 low at 0.9542 is the next key support level. A break below would then open up a potential retest of the early 2018 lows between 0.9200 and 0.9400.”