EUR/CHF seen around 1.20 in the next months – Danske Bank

Mathias Mogensen, Analyst at Danske Bank, believes the Swiss Franc could depreciate to the 1.20 area vs. the European currency in the longer run.

Key Quotes

“While EUR/USD has been bid in recent weeks, EUR/CHF has been under continued downward pressure. While US sanctions against Russian oligarchs may play a role in CHF strength, the market seems to increasingly be pricing SNB as an ECB derivative with a first 25bp SNB hike priced as early 2019”.

“While intervention appears to have ceased, this is only a first step in the SNB 'normalisation' process; the next step will be for the SNB to stop characterising CHF as ‘highly valued’. But, with the effective CHF having started to strengthen at a time when the Swiss economy may be losing some momentum and inflation remains stuck somewhat below 1% y/y, risking the recovery with exit talk is not a route that the SNB will be wanting to go down, in our opinion”.

“As the USD deroute is set to continue, we think the SNB will remain sidelined on further steps towards ‘normalisation’ for now, which will allow EUR/CHF to edge firmly into the 1.20s this year. A key risk to this would be if the SNB drops its FX reference already at the March meeting”.