Credit Suisse is out with a note saying the SNB will defend the EUR/CHF floor after a brief foray as low 1.2017 today — the lowest since 2012.
They note ECB easing and the Nov 30 gold referendum as driving factors.
“We continue to expect SNB to defend the floor with utmost determination. The first line of defense would, in our view, remain FX spot intervention. In case the market tests the 1.20 floor, we would expect the SNB to intervene aggressively. This was effective in 2012 and hence we believe the SNB would stick to this tool,” CS projects.
“Given little evidence of any strong ‘safe-haven’ bid unlike in 2011-2012 when euro area integrity was in question, we would assume intervention would be effective and smaller amounts could suffice this time on any challenge,” CS adds
Levels for intervention.
“The intervention level is not known. In 2012, daily lows on EURCHF averaged about 1.2009; – First data evidence of FX intervention should be visible from sight deposits released every Monday on SNB’s website,” CS notes. However, CS speculates that from past 2012 experience, the intervention levels could be around 1.2009.
Other tools..
“If that does not prove effective enough, SNB has repeatedly affirmed other measures are on the table. These would include a deposit rate cut or intervention in the forward/swap market (to push forward points negative),” CS argues.
“We suspect intervention in the forward market may perhaps initially be preferred as negative deposit rates may impose unnecessary costs on the domestic banking sector. However, we do not expect the SNB to shift the floor,” CS adds.
EUR/CHF Forecasts:
“We retain our three-month forecast at 1.21 but as further balance sheet measures from the ECB look more likely now, there are few upside risks to our target, in our view,” CS projects.
For more see eFX Plus.
