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Swiss Franc Maintaining Post-SNB Weakness

CHF
  • Following the spike lower for the Swiss Franc following the SNB decision to cut rates this morning, the likes of EURCHF and USDCHF are holding close to session highs. While we pointed out this morning that EURCHF remains in a downtrend, we did note the short-term condition was oversold. A continuation of this technical correction might signal scope for an extension towards 0.9664, the 20-day EMA. Interestingly, AUDCHF is currently testing the aforementioned resistance of both the 20- and 50-day EMA's. Attached is the latest analyst views on the CHF following the decision.
  • * CIBC: The statement implied that the SNB is looking through the slight pickup in inflation in rents, tourism services, and oil. CIBC expect one more cut from the SNB this year and like EUR/CHF higher towards 0.9600-0.9700, given their views on i) a more dovish SNB and ii) French political risks are likely to fade moving forwards.
  • * Citi: The degree the cut was driven by concerns around the latest safe haven inflows and Franc strength poses risks of a reversal if the political situation stabilises in France. The ECB’s and other central banks’ hesitation to cut could renew downward pressure on the Franc and thus upward pressure on Swiss inflation, which could make this cut premature. Conversely, if the other central banks start cutting in earnest in September, as Citi expect, the SNB will have less firepower to respond after today’s cut. Citi continue to expect only one more cut to 1.0% at the SNB.
  • * HSBC still expect a last rate cut in September of 25bp to 1.00%, a level that should be close to the neutral equilibrium level. However, the evolution of the CHF will remain a key factor for the outlook on SNB policy rates.
  • * Nomura retain their view of a weakening CHF in the medium-term. As CHF is one of the best funding currencies for FX carry trade strategies, Nomura believe short CHF will remain one of the consensus trades among G10. That said, Nomura think the timing to have this as a short position is crucially important, and they judge entering the trade now is not optimal on timing, as the outlook on the French political situation is uncertain, which increases the demand for CHF due to its safe-haven currency status. Thus, Nomura judge it would be sensible to revisit this short CHF trade when political uncertainty in the market calms.
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