Euro behaviour to weigh on Franc?

SNB will announce the amounts of demand deposits from last week today and the levels of FX reserves as at late August. The development of the demand deposits does not suggest that the reserves have risen notably. And if so the assumption is going to dominate that this is due to valuation effects, i.e. that the SNB's asset managers were lucky this time round. 

In any case it seems unlikely that the SNB intervened on the FX market to a notable extent. And why should it have been? Since early August EUR-CHF has been trading at levels that are unlikely to have given the SNB much cause for concern. 

According to Commerzbank, "That makes it clear that the weak franc which that is witnessed since late July has been market driven. The current EUR-CHF levels in the area of 1.07/1.09 are not a one-off. That means a renewed collapse of the exchange rate has become less likely for the foreseeable future than it was in times of exchange rates at 1.03/1.05". 

In part the recent weakness of the franc is likely to be due to the behaviour of the euro as a safe haven following the depreciation of CNY. Yes, the euro behaved more like a safe haven than the franc. However, that does not explain why the exchange rate is remaining at these higher levels. 

"The recent inflation data certainly is not pointing towards a recovery. If anything, deflation pressure seems to be rising. Permanently negative inflation levels should increase the value of the franc, shouldn't it? Even if the relative inflation development is often displaced by other factors, deflation of these proportions should have an effect on the exchange rate short term", added Commerzbank.