After hitting 1.1711 against the Swiss franc, its highest level since the SNB removed the 1.20 floor, EUR/CHF started to reverse gains in the wake of last Thursday’s ECB meeting. Mario Draghi scored a pretty good knack during the press conference as he was able to announce a reduction of the monthly asset purchase of €30bn per month, which is clearly tightening, while at the same time sounding dovish. The trick was to claim that this was no taper but rather a small adjustment to take into account the improvement of the economic situation. The icing on the cake was the Draghi’s reminder that the central bank would be ready to reverse course if the situation requires.
The last few months have been genuine holidays for the Swiss National Bank as EUR/CHF has kept rising. The total sight deposits at the SNB have stabilised at around CHF578bn since early May. Domestic sight deposits have even eased by 22.3bn since July; however, this decrease was offset by a surge in “other sight deposits”.
We believe that further upside EUR/CHF is quite limited in the short-term as traders are progressively adopting a more bearish bias on the pair. In addition, the Catalan crisis reminded everybody that the European Union is not as united as Brussels says. On the other hand, there is little incentive for investors to bet on a sharp reversal in EUR/CHF as monetary policy divergence is clearly in favour of the single currency. In addition, the SNB is far from lifting borrowing rates. A period stabilisation is therefore the most likely scenario.