EUR/CHF: SNB on hold while ECB on the move – CIBC

Analysts at CIBC, forecast the EUR/CHF pair will trade at 1.09 by the end of the first and second quarter of the next year. 

Key Quotes: 

“Although ECB policy action may not necessitate the SNB accelerating their intervention, we can expect the quarterly SNB policy update on December 17th to see the central bank maintaining their willingness to intervene against what the bank continue to view as a highly valued CHF. Of course, the perpetuation of intervention is not without risk as the central bank balance sheet continues to balloon while the country remains at risk of being labelled a currency manipulator by the US Treasury."

“While the SNB may be forced to adjust their GDP forecasts down, while CPI is set to remain well below target until 2023, we do not expect the SNB to ramp up the policy stance. As regards the CPI profile, a cheapening in the CHF would boost imported prices and boost CPI expectations. The prospect of a more constructive macro outlook in 2021, predicated upon a vaccine supporting a macro recovery, points towards leveraged CHF long positions, from near six-year highs, being unwound. The position reversal will allow SNB activity to be progressively reduced, this comes as EURCHF should head back towards 1.10 for the first time since November 2019.”