© Peter Frank
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To my mind, there is a serious risk that the Swiss Franc could appreciate out of hand, as it did a few years ago. We believe that intervention from the SNB is going to be very close. Therefore, the question is – if the bank intervenes, would it succeed, given the weakness in inflation and the seasonally adjusted demand figures, which have been softening in Switzerland?
Moreover, the export market has been suffering, since there are concerns regarding the downturn in the Euro zone in general. In addition, the weakness in Chinese demand for luxury items from Switzerland slightly puts pressure on the big picture. Thus, there are a lot of issues which are rather negative for the Swiss economy. The problem is in many excise factors that could drive the EUR/CHF lower – disappointing data from Germany, possibly even a technical recession. Also, there is a potential thread from the European Bank side, from Italy in particular.
We expect a stress test coming, and unpromising news may take place. Being more specific, this could be negative global demand from Asia and EM, which could drive a surge in safe heaven currencies. However, if you have several of these factors all at once, it could be very difficult for the SNB to intervene significantly to stop the drop.
What are your forecasts for the USD/CHF and EUR/CHF for the end of this year and the beginning of 2015?
We have got the EUR/CHF trading about where it is now at the end of the year. So we are looking for the floor to survive, therefore we have 1.21 for the end of 2014 and 1.2450 for the end of 2015. Our base case scenario is that the SNB is able to massage a higher spot rate over the course of the next year, and they could successfully defend the floor. And for the USD/CHF we got 0.9840 for this year and 1.0380 for the end of 2015.