Fundamental Forecast for Swiss Franc: Neutral

- One-sided sentiment points to further USD/CHF declines
- Swiss Franc falls as Consumer Price Index loses more than expected
- View our Swiss Franc Exchange Rate Forecast for October

The Swiss Franc was one of the worst-performing currencies to end the week’s trade, as a broad rally in key risky asset classes decreased flight-to-safety demand for the European currency. Recent Swiss National Bank forex market intervention likewise stayed fresh in many traders’ minds, and markets are understandably reluctant to force major CHF appreciation. The week’s Consumer Price Index inflation figures only reinforced fears of further SNB FX intervention; prices fell more than expected in the 12 months ending in September. Central bank officials have made it relatively clear that they will continue to fight Swiss Franc appreciation in the face of broader deflationary pressures in the domestic economy. Absent a material shift in CPI, we can reasonably expect the SNB to continue defending the key SFr 1.5000 mark against the Euro. Broader US Dollar weakness has left the USD/CHF lower in recent weeks, but our overall forecast for the CHF remains neutral on the persistently looming threat of SNB intervention.

Another relatively lackluster week of economic event risk leaves the Swiss central bank as the primary attraction for Swiss Franc in the days ahead. A Swiss Retail Sales report is the only real exception, but this report seldom forces major moves across CHF pairs. Traders should instead keep an eye out for important shifts in global financial market risk sentiment. Equity market bulls continued to rule the roost through last week’s trade and forced fairly universal gains across global indices. A continuation of such strength would almost certainly prove bearish for the Swiss Franc, but continued risk sentiment gains are hardly guaranteed. Despite strong year-to-date performance across key risky assets, it remains relatively clear that fortunes can and do improve at a moment’s notice. Swiss Franc traders should accordingly be on the lookout for any such deterioration in financial market risk sentiment and its effects on the safe-haven Swiss currency.

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