Fundamental Forecast for Swiss Franc: Neutral

- Swiss franc forecast to depreciate against US Dollar
- SNB intervention creates artificial range trading opportunity
- Swiss franc forecast to depreciate against US Dollar

The Swiss Franc finished the week marginally higher against the Euro despite clear and aggressive forex market intervention by the Swiss National Bank. Extremely fast CHF declines against its Euro Zone counterpart (EUR/CHF rallies) emphasized that the central bank is yet unwilling to allow major Swiss Franc appreciation against the Euro, but continued EUR/CHF tumbles seem likely to further test the SNB’s resolve. Indeed, the Euro itself was among the weakest currencies on the week as continued deficit crises in Greece and other EMU countries darkened outlook for the political-risk-sensitive currency. If markets insist on pushing the Euro to fresh depths against the Swiss Franc, the Swiss National Bank will remain the most critical determinant of direction in the EUR/CHF. Yet a busy week of Swiss economic event risk could likewise force sharp short-term moves in the recently-volatile CHF.

Swiss Unemployment Rate and Consumer Price Index data promise noteworthy CHF moves, but markets will otherwise monitor any continued tests of the key 1.4560-1.4650 support area in the EUR/CHF. The Swiss National Bank had previously defended any and all EUR/CHF tests of the SFr 1.5000 mark, selling the Swiss Franc aggressively and forcing impressive EUR/CHF rallies. Yet Swiss officials were nowhere to be found on the pair’s noteworthy decent below said mark. Instead, the past two weeks have seen the SNB defend 1.4640 and 1.4560 with aggressive CHF sales. On the one hand, aggressive central bank intervention should be enough to deter traders from pushing the EUR/CHF lower through upcoming trade. On the other, sharp Euro weakness has been a very clear factor in EUR/CHF declines and may make it difficult for the SNB to continue defending key technical levels.

Given that the central bank has ostensibly intervened to offset deflationary pressures from currency appreciation, any especially sharp surprises in upcoming CPI data could very well limit the need for further official CHF selling. Consensus forecasts call for a noteworthy jump in year-over-year inflation rates—pointing to the highest CPI gain since November 2008. Yet such relatively lofty expectations leave clear risk for disappointment, and there is little doubt that the Swiss Franc would respond poorly to a significantly below-forecast print. Modest price pressures would only encourage the SNB to continue intervening in forex markets, and it will be critical to see any and all reactions to CPI data seen in the EUR/CHF.

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