ECB's policy accomodation likely to weigh on SNB

More policy accommodation by the ECB in the coming months will likely add pressure to the SNB and increase market speculation regarding further policy measures. Indeed the SNB is likely to step up FX purchases should the recent EUR/CHF sell-off persist. 

More broadly, a wait-and-see policy stance is expected from the SNB in the coming months. If the ECB extends the time horizon of QE, a decline in medium-term EONIA rates are expected to put further pressure on the EUR to depreciate. 

"However, pressure might not be too great on the EUR/CHF bilateral rate. A relatively stable EUR/CHF or in fact a resumption of the EUR/CHF uptrend will likely keep the SNB on the sidelines", says Barclays. 

In contrast, a cut in the ECB's deposit rate likely would have a significant effect on the EUR/CHF exchange rate and provoke a more immediate response from the SNB,  extending negative deposit rates to all sight deposits rather than the roughly one-third to which it now applies. 

"As a result, although modest EUR/CHF appreciation is likely, there is value seen in owning out-of-the-money upside in EUR/CHF under a scenario where the ECB further cuts its deposit rate. On that note, this week's SNB Q3 currency allocations and earnings reports will likely attract market interest", added Barclays.