Our view is that USDCHF is likely to remain broadly stable in Q4 and Q1, as the effects of easing trade tensions lead to reduced demand for CHF as a haven asset, but the US dollar itself deteriorates.
Through to the second half of 2020, we believe the fundamental overvaluation of CHF and an improving macro picture in the Eurozone will allow the pair to trade towards 0.95 by the end of Q4 2020.
The SNB’s September meeting saw it again take note of CHF overvaluation, and reiterate its willingness to intervene in foreign exchange markets “as necessary”. The SNB has not yet eased in response to the ECB’s decision to cut rates and resume asset purchases, and fixed income pricing suggests market participants don’t expect it to do so in December.
However, we do note that the period of EURCHF trading below 1.09 in August was accompanied by a sharp increase in sight deposits in the local banking sector, suggesting probable FX intervention from the SNB.
The SNB is likely to remain extremely resistant to any further appreciation against the euro. We expect that any sustained fall towards the 1.08 level for EURCHF would be met with a 10bp cut in the policy rate and the threat of FX intervention.
Our EURUSD call for end Q4 2020 of 1.17 and USDCHF call of 0.95 together imply a EURCHF rate of 1.11 at this time.