- This is also our case with a long-term target of 0.9410.
- The recent break of the 0.9700 support zone is an important signal that selling pressure will persist.
A minority of market participants expect the euro to rebound in the second half of the year (e.g., Commerzbank has adjusted its price target for EUR/CHF upwards to 1.05). In our view, there is no evidence to support this scenario, whether based on fundamentals or technical market elements (such as key levels, flow trends etc.).
The interest rate differential and the geopolitical risk are usually the two main markers for the Swiss franc. The year 2023 is no exception to the rule. For the time being, the geopolitical risk is reduced. We doubt that the situation in Ukraine will deteriorate sufficiently to cause a return of volatility in exchange rates. The risk of a US default could create volatility. In 2011, when the U.S. was facing a similar situation, the Swiss franc was the biggest winner ahead of the Japanese yen, rising 7%. Traders looked for hedging tools and obviously the Swiss franc came out on top. However, history does not always repeat itself. Negotiations on raising the cap are going to be very difficult, that's for sure. On the other hand, currently it is not an element of additional volatility in the market. The closer we get to the June 1 deadline for a deal (some are starting to talk about June 15!), the more erratic we could see currency movements. However, for now, it's all quiet on this front. The rate differential is most important at this point. There is a clear correlation between the interest rate differential between Germany (the benchmark for the Eurozone) and Switzerland - see chart below. The wider the spread, which also reflects the different monetary policy stances and risk perceptions of market participants, the more the EUR/CHF tends to depreciate. This movement is unlikely to stop in the short term, especially because the Swiss National Bank is expected to tighten its monetary policy longer than the European Central Bank.