EUR/CHF: approaching an attractive buying level

The franc has hit its highest level against the euro for almost three years after fears regarding a recession, and a number of geopolitical risks, boosted interest in safe havens during 2018 and 2019. The Swiss franc’s power grew particularly strong last week with the announcement by the USA of its decision to include Switzerland in its list of currency manipulators, thus limiting the room for manoeuvre of the Swiss National Bank (SNB).

In the immediate future, the franc is expected to continue to rise while the market absorbs the news, targeting its highest level since 2016/2017 of 1.0630. A return to around 1.05, often synonymous with an intervention by the SNB, is not being ruled out.

However, at such levels the pair might attract further interest from buyers and thus trigger a rebound. Advanced macroeconomic indicators are starting to rebound in Europe and geopolitical risks are being mitigated, in particular by the signing of phase one of the trade deal between China and the United States. The global markets are also at record levels revealing a recovery in the appetite for risk, something not normally favourable to the Swiss franc.

The yen, the safe-haven currency par excellence, has lost more than 3% against the euro since September, whereas the franc has gained more than 1% over the same period. The pairs EUR/CHF and EUR/JPY tend to correlate, and such large discrepancies will not last in the long term.

The greatest risk from this scenario would be a deterioration in the geopolitical climate in Europe, with the potential announcement of customs duties from the USA. This might incite the ECB to further relax its monetary policy, something which the SNB will struggle to replicate with a balance sheet already exceeding 120% of its GDP, at the risk of provoking reprisals from the USA.