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EURCHF Going Down

EUR/CHF is bearish and we expect a major fall in the EUR after the recent hike in rates in Switzerland and the attitude from the SNB that the CHF is no longer overvalued.

SNB Raise Interest Rates

Recently: “The SNB has just joined the hawkish camp by raising its rate by 50 basis points to -0.25%. This indicates a willingness to take the lead and keep the initiative given the expected rate hikes by the ECB. Over the year, the SNB should nevertheless be less aggressive than the ECB.”(ING THINK)

In our recent articles on the Euro, we have made the point that the ECB cannot raise rates as quickly as the market expects and we view the zone as facing a huge crisis in terms of the poorer nations being unable to take higher rates and even if they do raise rates its discounted.

While the Swiss franc was considered by the SNB to be overvalued for many years the SNB now believes the franc can rise which they view as a positive to fight inflation. There is another way the CHF could strengthen which is if we see a liquidation of their massive overseas assets.


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SNB Balance Sheet Reduction to Strengthen the CHF.

The Swiss National Bank is effectively a hedge fund in the way it operates it holds just under 1 trillion in terms of overseas assets.

The SNB printed money and bought equities which is a bizarre way for a central bank to behave but they did it anyway. and now, their raising rates and have to get rid of their assets which could cause more turmoil in global financial markets…

GS wrote: “SNB’s balance sheet assets consist largely of overseas investments, there is no “natural” run-off, as is the case for other central banks implementing quantitative tightening (QT).

Instead, Swiss QT would require active selling, with implications for both the Franc and foreign assets”. It does, while the SNB want the CHF higher it could actually shoot higher than they think.

We also expect a move to risk off which will firm the safe haven CHF – the big trend is up and has further to run in our view.

Technical Analysis

In terms of EUR/CHF, on the chart below we have seen a big sell-off but the trend is now down and any rallies back to resistance are likely to fail. We expect a move to 1.000 then down to the next monthly support level at 0.9600.

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