Morgan Stanley on the Swiss franc

When the SNB tells you they think the CHF is overvalued, you wouldn't think USDCHF hitting an 8 month high and approaching 1.00 would be an issue. However when the USD has been rallying this month, EURCHF has been falling to approach the 1.08 level, which we think has been a line in the sand for the SNB before.

Of course whether the SNB intervene to stop the CHF appreciating will depend on the pace of the EURCHF move but we are finding that pace is becoming increasingly related to reaching this 1.08 level. Actually the SNB doesn't hide away from the fact they have been intervening since formally removing the floor in January 2015. The SNB's VP Fritz Zurbruegg said yesterday "We don't have a fixed limit for growing the balance sheet; it's a corollary of our foreign exchange market interventions". Sight deposits, a measure of intervention, have increased by 10.8% since the start of the year.

We expect EURCHF to remain in a 1.08-1.10 range, while USD strength should push USDCHF towards 1.01 in coming weeks.

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