The Swiss franc is still trading below 1.10 against the single currency despite short-term bullish pressures on the pair. We believe that there is at the moment two major reasons that are pushing the euro against the Helvetic currency.
The French Presidential election and the start of the “Brexit” negotiations have removed – at least reducing the political and geopolitical uncertainties - so markets are clearly shifting towards risk-on and this is why we see the EURCHF pair moving up. In addition, Mario Draghi’s comments pushed the euro higher by stating the Eurozone recovery is progressing and the ECB monetary policy stance must accompany this recovery. Markets interpreted those declarations from the ECB as hawkish.
The Swiss fundamentals remain correct, even though inflation is clearly not picking up. We nonetheless remain concerned by the FX reserves which continue their massive increase. For the time being, the SNB holds tight to defend the Swiss franc. By the way, the Swiss central bank is now the world's eighth most important investor with $80 billion dollars invested in the US market.
The CHF valuation does not depend on Swiss Economy data. Markets barely reacted on the release of retail sales growth which came in negative for the 2nd month in a row. Swiss political stability is still what attracts investors and we see the EURCHF pair showing a short-term continued bullish move towards 1.1000.
By Yann Quelenn