Fundamental Forecast for Swiss Franc: Neutral

- Swiss KOF rises to its highest in 17 months
- Swiss Franc Futures and Options positioning nonetheless points to CHF losses

The Swiss Franc finished the week modestly higher against the Euro in open defiance to clear Swiss National Bank FX intervention. The Euro/Swiss Franc exchange rate hit the contentious SFr 1.5080 mark and very quickly reversed—raising clear suspicion of SNB selling. Indeed, the EURCHF hit its lowest levels in nearly a month following a much better-than-expected Swiss KOF Leading Indicator report. Yet the declines were quite short-lived, and the SNB seemingly drew yet another “line in the sand” to prevent excessive Swiss Franc appreciation. Holding with its policy, the Swiss central bank neglected to comment despite the telltale signs of intervention. Of course, the effects were clearly short-lived; the EURCHF finished just above pre-intervention levels through the end-of-week close. Sharp drops in global equity markets led traders to sell the risk-sensitive Euro and buy the safe-haven Swiss franc—leaving questions as to whether EURCHF intervention may be effective.

The countervailing forces of Swiss National Bank intervention and financial market flights to safety should make for another eventful week of Swiss Franc trading. A busy week of economic event risk likewise promises no shortage of excitement, and FX Options markets are pricing in the most EURCHF volatility in nearly a month. The major highlight will likely be Thursday’s Swiss Consumer Price Index report. Given the SNB’s resolve to prevent CHF appreciation in the face of deflationary pressures, any strong surprises in either direction could force considerable price movements. Consensus forecasts call for a 0.7 percent month over month gain, but the annual figure is expected to show contraction at -0.7 percent. Pressure remains on the SNB to stave off deflation, but a considerably above-forecast print would almost certainly ease said pressure. Traders will otherwise look to Friday’s combination of Swiss and US Employment numbers. Suffice it to say, any and all surprises could force substantial financial market volatility. Given the increasingly narrow week-to-week ranges in the EURCHF, one gets the sense that the pair is preparing to make a substantial break in either direction.

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