CHF: Mirroring EUR-USD - HSBC

Tactically, there is little real drama in the CHF beyond that created by the moves in EUR-USD explains analyst at HSBC.

Key Quotes

“The domestic narrative of low inflation, negative rates and an appetite for FX intervention is so well worn that it has no market impact. So we expect USD-CHF will remain the mirror to moves in EUR-USD which, given our EUR view, suggests USD-CHF will extend its bounce off 0.9800 a little further. EUR-CHF will likely continue to track sideways barring something unexpected in the run-up to the French presidential election.”

“The SNB’s appetite for FX intervention cannot be doubted. Apart from the repeated rhetoric, their own data showed they continued to intervene in 2016 to the tune of CHF67.1bn. This was less than the CHF86.1bn in 2015 and the record CHF188bn in 2012, but it illustrates that the central bank was still active. Nor is there any sense that the sensitivity of the new US administration to currency issues is likely to deter future action. SNB president Jordan says that Swiss monetary policy is designed to prevent an overvalued CHF from becoming more overvalued. It is not about competitive devaluation. All of which suggests little prospect of any shift in the rhetoric favouring FX intervention.”

“What would it take for this to change? SNB board member Maechler said that the CHF is 10% above its long-term average based on SNB models, a takeaway that matches the picture painted by BIS calculation of the broad CHF REER. So arguably, the currency would need to weaken by 10% in real terms for the SNB to shift its narrative. This feels unlikely anytime soon. In fact, the SNB seems at pains to stress that it can intervene more if required with Maechler noting that there is no upper limit on an expansion of FX reserves.”

“The greater risk for the CHF, for now, is that the market’s current confidence that Le Pen will not win the French presidential election is shaken by events or polls. There is little political risk built into either the EUR or the CHF we believe, creating an asymmetry to the downside for EURCHF should the market become more nervous as the election approaches. Absent such an unexpected development, however, the EUR-CHF should be stable and USD-CHF a mere mirror of EUR-USD.”