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I think one should compare the Swiss Franc with the Euro and definitely look at this pair's exchange rate, because it is the one which matters from the monetary policy perspective. To my mind, the overall performance of the Swiss Franc was quite good in the recent months; however, it was partly due to the fact that the Swiss National Bank was in a smaller size but continuously in the market. Nevertheless, the performance of the Swiss Franc was a bit worse than what it would have been if there only had been market forces.
What will be the major drivers for CHF throughout the Q2 of 2016?
First of all, one of the headwinds is general risk sentiment, obviously. We have seen several examples of it already, for instance, rising risk aversion in the FX market which has a significant influence on the Swiss Franc, putting the EUR/CHF currency pair under pressure.
Another driver is, obviously, the impact the Euro has on the Swiss Franc given the strategy of the European Central Bank. Recently, we have seen that the ECB was following the way which was not so much of a burn for the Euro; however, I doubt this will prevail, especially if the EUR/USD and other Euro exchange rates would go upwards.
Finally, one of the most significant factors is what the SNB is doing. The Swiss National Bank so far has been constantly in the market with interventions in the EUR/CHF exchange rate, and this is something that might continue for a while. However, from my perspective, this cannot continue forever, as their balance sheet is rising in size, which is something they are not happy with; therefore, if the SNB changes their strategy regarding interventions at some point, this would also have a negative impact on the EUR/CHF, sending the Swiss Franc up.
What are your forecasts for EUR/CHF for the Q2 of 2016?
By the end of the second quarter, we could see the EUR/CHF trading at 1.09, which is basically a sideways movement. The risks of a downside move for the CHF I was referring to before is something which I expect to come later this year or early next year.