EUR/CHF: Risk-off and dovish ECB calls for SNB intervention – Danske Bank


According to analysts from Danske Banky, intervention from the Swiss National Bank (SNB) might be the only thing stopping EUR/CHF from falling deeply through the 1.10 level, which would cause further deflationary pressure and test the credibility of the central bank.

Key Quotes: 

“EUR/CHF is set to see continued pressure from global riskoff sentiment after the less dovish Fed, global weakness and rising trade tension. While our medium-term bias remains for a higher pair on  fundamentals, we believe risks are skewed towards even more CHFstrength near term.”

“The ECB being set to deliver a significant easing package at the September meeting is likely to put even more pressure on SNB to follow suit, i.e. go further negative and possibly expand its balance sheet further. However, the SNB (1) revealing its distaste for balance-sheet expansion when abandoning the EUR/CHF floor in January 2015 and (2) maybe closing in on a tipping point for where more negative rates could become counterproductive implies markets could test the SNB’s willingness/ability to deliver. This could send EUR/CHF well below 1.10.”

“We lower our near-term forecast for EUR/CHF to 1.09 (from 1.11) in 1M and 1.10 in 3M (was 1.11) and stress that risks are on the downside and dependent on the SNB’s actions. We cut our 6M and 12M forecasts to 1.12 (was 1.13) and 1.14 (was 1.15).”

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