Analysts are bearish on CHF’s forex charts while they see the spot as a preferred funding currency for risk trades across the forecast period. The Swiss National Bank is very uncomfortable to lift the 1.20 floor price under the EUR/CHF cross rate, as inflation are at lows and the CHF spot still very expensive on most valuation metrics. BNP Paribas expects the Swiss investor appetite for foreign investments to enhance while global investors will fund carry trade in CHF spot, thus weakening the spot over time.
The CHF spot is the most overvalued currency in the G10 FX bloc, with EUR/CHF trading more than 12%, or two standard deviations, below our fair value estimate of 1.41. Goldman Sachs forex charts analysts pointed out that this is consistent with the Swiss National Bank’s own views on fair value and suggests the CHF has substantial room to fall as global monetary conditions normalise.
Goldman Sachs forex charts analysts maintained its forecasts for EUR/CHF at 1.25, 1.28 and 1.28 in 3, 6 and 12 months. This equates to USD/CHF at 0.91, 0.91 and 0.91. The broker valued the EUR/CHF as 1.36 and USD/CHF is estimated at 1.14.
According to the broker, the capital flows that sustained the intense appreciation on the 1.20 Swiss National Bank floor price have have mellowed down, as eurozone pressures diminished in second quarter in 2013. The extremely low and occasionally negative nominal return on cash in Switzerland has created the CHF spot less attractive. Goldman Sachs have noted the CHF sell offs for the first time since the floor price was introduced in September 2011, as the Eurozone assets recovered in early 2013.
Some safe haven inflows are visible in the forex charts which are in a reversed condition as of the moment as the Euro area tensions are abating. The CHF firmness should later on reverse from a “fair value” perspective. However, some offsetting factors may limit the pace of the move, including some tensions from the unwinding of legacy carry trades like mortgages in Central Europe and CHF funded long dated structured products. The Swiss balance of payments situation is still intact and supportive of the Swiss franc.
The central bank has pledged its monetary policy instruments to containing CHF strength , committing to render CHF liquidity and to buy unlimited amounts of EUR to control EUR/CHF depreciation below 1.20. BNP Paribas expect growth to improve in Switzerland in the near term. Economists are anticipating a 1.9% real GDP widening in 2013 and 2.0% in 2014. The Swiss National Bank was put in a position not to pressure itself to tighten monetary policy or remove the EUR/CHF floor price. The Swiss Bank is retaining its existing accommodative policy until the CHF has weakened substantially, making the currency a very attractive funding currency for FX trading.
The Swiss National Bank aims for inflation with a ceiling price on CPI set at less than 2% per annum. The Swiss National Bank uses 3-month Libor as its policy instrument. However, the SNB has victoriously enforced a minimum rate for EUR/CHF at 1.20. It readied to purchase FX in unlimited quantities to defend it.
Switzerland constantly runs an enormous balance of payments surplus at approximately 12% of GDP and has accumulated the largest net international investment surplus in the G10 bloc. Forex charts analysts expect the surplus to be in place towards the end of 2014. Switzerland has has struggled to recycle this surplus during the post-crisis environment of low G10 yields and variable risk appetite. The Swiss appetite for foreign assets should improve which will spur the CHF to underperform more consistently.
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