EUR/CHF likely to trade around 1.08 in medium term, says Commerzbank

The EUR/CHF pair is likely to trade in a range of around 1.08 in the medium term, according to a Commerzbank research report. The European Central Bank is expected to continue with its monetary policy in the near future so that appreciation pressure on the Swiss franc is likely to remain. Meanwhile, the Swiss National Bank is expected to prevent the Swiss franc from appreciation with the help of regular interventions. This suggests that the central bank has to accept an extension of its balance sheet, stated Commerzbank. But the SNB is unlikely to maintain this strategy in the long term.

At certain point, the Swiss National Bank would have to decide whether it would keep on preventing the appreciation of the franc so as to keep its inflation target on whether it considers the continuous increase of the FX reserves to be a bigger risk and thus ends the interventions.

“We are of the view that in the end the inflation target will draw the short straw, as happened before in January 2015”, said Commerzbank.

Once the Swiss central bank abandons its strategy, the EUR/CHF pair would fall like a stone. The timing of such a downward movement is quite challenging to project; however, the risk of it occurring should not be underestimated, added Commerzbank.

At 10:00 GMT the FxWirePro's Hourly Strength Index of Swiss France was bearish at -83.2639, while the FxWirePro's Hourly Strength Index of Euro was neutral at 11.5581. For more details on FxWirePro's Currency Strength Index, visit http://www.fxwirepro.com/currencyindex