- In view of the current international situation, we are more prepared to intervene in currency markets
- We are ready to intervene in the FX market to dampen any rapid, excessive appreciation of the franc
This was quite expected already in the weeks before. I highlighted that in a post here: US-Iran tensions most untimely for the SNB
So, that provides much of the backdrop needed to understand why the SNB is responding as they are above. As mentioned then:
“The big question is where does the SNB draw the line next in terms of intervening to limit the franc strength? And how much are they willing to go up against market sentiment?”
For now, EUR/CHF is starting to nudge closer towards the crucial 0.9000 mark with the low earlier today touching 0.9035. The pair is still down 0.4% to 0.9053 currently in spite of the SNB’s comments above. Is that where the SNB might draw a first line of defense? It seems like verbal intervention is the first step as seen above. So, we’ll see.
Morgan Stanley is one to argue that there’s still further room to the downside though. However, just take note that this view was expressed on Friday last week, just before the US-Iran conflict escalated. The firm said that:
“We think our 12m forecast of 0.87 in EUR/CHF stands in sharp contrast with consensus and market pricing. We estimate a decline of EUR/CHF to 0.87 over 12 months is only priced at about a 25% probability, for example. Meanwhile consensus forecasts place EUR/CHF modestly higher, not lower, over the next 1-2 years. This underpricing suggests CHF longs are attractively priced as a hedge for risk-oriented portfolios – and as a safe haven hedge against the risk of unexpected and large shocks. EUR/CHF shorts are attractive, in our view, and we continue to recommend short EUR/ CHF positions targeting 0.87.”
