CHF: Focus On Inflation Data; EUR/CHF Dips Below 1.0600-1.0650 A Buy
The CHF has been well supported for most of the last few weeks, mainly on the back of rising safe haven demand related to rising political uncertainty in Italy and France. This is reflected in EUR/CHF being closely correlated to peripheral bond yield spreads. Elsewhere, there has been speculation that the SNB is close to its limits, especially considering its still expanding balance sheet.
However, with inflation remaining low and the currency regarded as the main driver of monetary conditions, we do not expect the central bank to consider a less aggressive monetary policy stance anytime soon.
From that angle, this week’s January inflation data will be closely watched, which is unlikely to suggest improving price developments. With more forward looking measures such as the Kof leading indicator pointing to lacklustre growth prospects, we see little scope of growth being strong enough to compensate for the overvalued currency’s dampening effect on inflation.
We remain of the view that EUR/CHF dips below 1.0600-1.0650 should prove a buy.