EUR/CHF: 12M target moved up to 1.20 - Danske Bank

Analysts from Danske Bank, moved to the upside their 12M target for EUR/CHF to 1.20 taking into account that the Swiss National bank exit will lag the one of the European Central Bank. 

Key Quotes: 

“While we have been calling for a higher EUR/CHF for long, even our relatively upbeat forecasts have been caught by the recent market move. Our G10 medium-term valuation (MEVA) model continues to point towards a EUR/CHF in the mid-1.20s as fundamentally justified on a longer-term horizon and we have upped our 12M forecast for the cross to 1.20 to reflect that we think that the ECB exit tide has turned for good.”

“Notably, we think that the SNB will want to see an ECB normalisation being well underway before adapting its current policy. Even if a first ECB hike may be priced a bit too early (first 10bp hike priced late 2018) and even if Draghi announces another round of QE purchases (likely in September), we expect EUR strength to remain in place, as the ECB has let the exit talk out of the bottle for good, in our view.”

“Importantly, the SNB will likely wait until EUR/CHF is somewhat above the old floor level of 1.20 before communicating its own exit, meaning SNB hikes remain far off. Indeed, we think this will be the key message at the 14 September SNB meeting: SNB will not join the ‘Sintra normalisation accord’ yet.”

“Near term, positioning is slightly long but not stretched overall for EUR and CHF alike, which suggest risks are broadly balanced short term. As our economists look for the positive euro sentiment to prevail for the time being, we think the current levels might prevail near term and look for the cross to stay around 1.14 in 1M and 3M (from 1.11), edging higher towards 1.16 in 6M (from 1.13).”

“Risks relating to the upcoming Italian election may dampen the euro-positive sentiment towards year-end but should not be able to derail it. Although not our base case, a key downside risk to EUR/CHF is a further rise in tensions surrounding North Korea as the CHF is the only genuine safe-haven currency in the event of an escalating conflict.”