Over the last days, the Swiss franc made a solid comeback in the wake of worsening crisis in Turkey and mounting worries of emerging market contagion. After falling more than 5% in early summer as Italy’s election damaged European unity, EUR/CHF fell another 4% over the last month amid trade war tensions. There is no doubt the Swiss National Bank has had a stressful summer, as investors returned to the Swiss franc and safe-haven assets in general.
According to the SNB’s weekly report, the central bank hasn’t intervened in the FX market since July 2017. Total sight deposits have remained stable around CHF 575 billion, with a maximum at CHF 579.7 billion last August. In our opinion, the Swiss franc hasn’t appreciated enough against the euro to trigger SNB intervention. Monday’s report will give the answer. The currency pair currently stands at 1.1360, well above the implicit 1.05 floor. In addition, the euro sell-off looks overdone and easing tensions between China and the US could only help improve overall risk-sentiment. Although we remain cautious in the short-term, EUR/CHF can go only go up in the medium to long-term.
By Arnaud Masset
