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FOREX: EURCHF Hovers Above 0.9300 Support, SNB May Limit Downside Potential

FOREX
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  • The upturn in geopolitical risk and escalated tensions between Russia and the West had initially weighed on the Euro Tuesday, with lower core yields also moderately benefitting the Swiss Franc.
  • This morning’s price action saw EURCHF broadly match the September lows around 0.9305, and importantly the cross has failed to have a daily close below the 0.9300 handle since January 08, even amid the substantial move lower in early August as global carry positions were unwound.
  • Interestingly, Barclays have pointed out that a deeper cutting cycle by the ECB at a time when the SNB is already priced to cut close to 0%, either due to tariffs or the possibility that the eurozone's R* is lower than currently thought, could push the SNB's defence line to fall below 0.93.
  • However, we would note that whether this defence line might be adjusted, the likelihood of the SNB stepping in at some point remains high, with some analysts viewing the CHF as too strong versus both rate differentials and more fundamental metrics of fair value.
  • Indeed, JP Morgan recently said that the Swiss franc should attract safe haven inflows in a world where tariff risks are live, and so EURCHF should fall, but the hit is likely to be cushioned by more active intervention from the SNB.
  • We also recently highlighted that Bank of America believe the macro case for weaker CHF seems clear, and their “favoured expressions for a lower CHF” are vs USD and GBP.
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  • The upturn in geopolitical risk and escalated tensions between Russia and the West had initially weighed on the Euro Tuesday, with lower core yields also moderately benefitting the Swiss Franc.
  • This morning’s price action saw EURCHF broadly match the September lows around 0.9305, and importantly the cross has failed to have a daily close below the 0.9300 handle since January 08, even amid the substantial move lower in early August as global carry positions were unwound.
  • Interestingly, Barclays have pointed out that a deeper cutting cycle by the ECB at a time when the SNB is already priced to cut close to 0%, either due to tariffs or the possibility that the eurozone's R* is lower than currently thought, could push the SNB's defence line to fall below 0.93.
  • However, we would note that whether this defence line might be adjusted, the likelihood of the SNB stepping in at some point remains high, with some analysts viewing the CHF as too strong versus both rate differentials and more fundamental metrics of fair value.
  • Indeed, JP Morgan recently said that the Swiss franc should attract safe haven inflows in a world where tariff risks are live, and so EURCHF should fall, but the hit is likely to be cushioned by more active intervention from the SNB.
  • We also recently highlighted that Bank of America believe the macro case for weaker CHF seems clear, and their “favoured expressions for a lower CHF” are vs USD and GBP.