EUR/CHF: Limited scope for a break higher in the next six months – Rabobank

The euro rallied about 3% against the safe-haven CHF between May and early June, as the easing of coronavirus restrictions boosted hopes of economic recovery. The pair, however, has pared losses over the last weeks and, the FX analysis team at Rabobank, do not see reasons for a break in the foreseeable future

Key quotes

“To a large extent, the amount of FX intervention by the SNB going forward will be determined by the broad tone of risk appetite. As illustrated by the recoveries in global stock markets, risk appetite has strengthened in the recent week suggesting that the safe-haven CHF will have been in less demand.”

“Insofar as the CHF is particularly sensitive to upheaval in the Eurozone, the improvement in the fundamentals behind the EUR has also relieved pressure on the CHF. The EUR has been boosted by the European Commission’s budget proposal which takes a step towards regional debt sharing. In addition, the huge extension of the ECB’s PEPP suggests it is willing to do whatever it takes to chase away fears of fragmentation in the region.”

“That said, this week’s worsening in geopolitical news regarding tensions between China and India and N and S Korea in addition to a rise in Covid-19 cases in various US states suggests there is plenty of scope for another surge in safe-haven buying in the months ahead. For this reason, we see limited scope for EUR/CHF to break higher from recent ranges on a 6-month view.”