With the 10th March ECB meeting round the corner and the market mulling the prospects of large-scale easing, the reaction function of the SNB is coming back into focus, notes Deutsche Bank.
Does the central bank have any ammunition left to prevent a sharp fall in EUR/CHF if Draghi deploys the bazooka?
"This week’s sight deposit and January reserve data suggest that the SNB may have been conducting small scale intervention recently. It would be sensible for the SNB to want to push the currency lower in quieter times to provide breathing space, but the problem with reactive FX intervention to an appreciating franc remains that the SNB communicated balance sheet constraints to the market last year," DB argues.
Due to the above, DB recommends exiting EUR/CHF longs, and waiting until the March dust has settled before reentering Swiss shorts.
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