EUR/CHF: A Buy On Dips Below 1.0650-1.0700

EUR/CHF has been under pressure of late, mainly due anticipated M&A activity and renewed safe haven demand as driven by political uncertainty with respect to France and Italy.

However, we remain of the view that the cross should prove a buy on dips below 1.0650-1.0700.

Both still muted price developments and a lacklustre growth outlook as indicated by the Kof leading indicator suggest that there is limited scope of the SNB turning less dovish anytime soon. This is especially true as the overvalued currency is keeping monetary conditions too tight.

From that angle we do not expect the SNB to tolerate EUR/CHF to trade around the current levels or below for an extended period of time. It may be true that the central bank’s balance sheet is regarded to be on track with reaching unsustainable territory.

Nevertheless, such a conclusion appears premature as not long back indicated by central bank President Jordan himself. All of the above suggests that a policy mix consisting of negative rates and currency intervention will stay intact.

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