CHF: Time For Another Round Of Weakening: Where To Target? - Nordea

The February fall in EUR/CHF can be explained by the fall in USD/CHF, which was triggered by the fall in USD short rates. This was mostly a USD story as the Fed hike probability for March fell from over 20% to 0%, and the markets responded violently – FX volatility rose. But now it seems that the Global Economic Surprise Index is bound to pick up and USD rates will be repriced higher, which should put pressure on volatility and the CHF again - broadly.

Has SNB willingness and capacity to intervene? According to SNB’s Jordan, the CHF is still “significantly overvalued”. Further action is justified by the stagnating economy and continuous deflation (even core prices are falling at a rate close to 1% y/y). Unlike 2011 and 2012, the SNB is not afraid of intervening in the FX market due to “bubbles”, as the housing market has cooled off a lot by now.

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