EUR/CHF set to remain under pressure - Danske Bank

According to analysts from Danske Bank, the EUR/CHF pair is set to be under continued pressure from broad-based US Dollar weakness and a Swiss National Bank that is increasingly cornered by a dovish European Central Bank. 

Key Quotes: 

“EUR/CHF is closing in on levels where SNB might step in, which could limit USD/CHF downside too. Our medium-term bias remains for the cross to edge higher on fundamentals but risks remain skewed towards CHF strength near term, as monetary-policy constraints bite and central-bank credibility is set to be tested.”

“If we are right that the ECB will deliver a significant easing package at the September meeting, it will surely put pressure on the SNB to follow suit, i.e. go further negative and possibly expand its balance sheet further. However, that, the SNB (1) revealed its distaste for balance-sheet expansion when abandoning the EUR/CHF floor in January 2015 and (2.) may be closing in on a tipping point for where more negative rates could become counterproductive implies that markets could test the SNB’s willingness and ability to deliver. This could send EUR/CHF towards 1.10 again.”

“We keep our near-term forecast of EUR/CHF at 1.11 in 1M and 1.11 in 3M and stress that risks to this are asymmetric and on the downside here; we keep our 6M and 12M forecasts unchanged at 1.13 and 1.15, respectively.”