The rapid strengthening of the Swissie increases the risks of foreign exchange interventions by the SNB
After in January 2015, the National Bank decided to refrain from keeping the floor at 1.2 under the EUR/CHF, many believed that the era of barbaric methods on Forex went into oblivion. The attempt to contain the strengthening of the franc was expensive for the SNB. Even more expensive was the subsequent revaluation of the swissie to the economy of the country. It began to recover only in 2017-2018 against the background of the growth of the euro to the very memorable level of 1.2 in April this year. Alas, but the external background and internal positive factors favorable for the swissie became a real headache for the central bank. The EUR/CHF is rapidly falling in the direction of 1.12. TD-Bank thinks this level is critical. In its opinion, as the currency approaches it, the SNB will once again turn to barbaric methods and will dazzle Forex with currency interventions. Commerzbank predicts that the regulator will wait up to 1.1, and ING is confident that it will begin to interfere in the area of 1.12-1.13.
The panic on the markets of developing countries, political risks and positive macrostatistics in Switzerland allowed the franc to become the best performer of August among the G10 currencies. The swissie continues to serve as a safe haven, which, given the potential slowdown in world GDP and the correction of US stock indices, makes it possible to consider it as a favorite in September. Moreover, the first month of autumn is a seasonally strong time interval for the swissie. Since 1975, it has been strengthened by its results against the US dollar in 28 of 43 cases.
Performance of G10 currencies in September 1975-2017
From the fundamental point of view, we should not be surprised by the strengthening of the swissie against the US dollar and the euro. The greenback is seeing a massive closing of positions due to concerns about the slowdown of the US economy and the process of normalizing the monetary policy by the Fed. The differential of economic growth of the eurozone and Switzerland in the second quarter reached a minimum mark in almost two years, while political risks with a sword of Damocles hang over the EUR/CHF bulls. The pair is sensitive to the expansion of the spread of Italian and German bonds, which in conditions of the flight of non-residents from the debt market of Italy allows the bears to feel confident. The eurosceptic government is ready to step back from plans for fiscal consolidation and stimulate GDP growth, which is fraught with an expansion of the budget deficit, an increase in the national debt and loss of the rating.
Dynamics of the EUR/CHF and bond yield differential
According to Swiss Re estimates, the realization of Donald Trump's threat to expand import duties against China by $ 200 billion will cost the world economy 0.5 pp in 2019, although initially investors will still believe that the parties will sit at the negotiating table. The slowdown in GDP of the Celestial Empire puts serious pressure on the markets of developing countries, and buying their assets is like catching falling daggers.
Thus, the SNB is in a very difficult situation and, surely, is ready to intervene. The levels of 1,1-1,12 become extremely dangerous for sales of the EUR/CHF. At the same time, the improvement of the political landscape in Italy and the recovery of the euro-zone economy will be signals for buying the pair upon the resistance break at 1,145-1,146.
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Price chart of USDCHF in real time mode
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