Swiss franc outlook weakens as SNB left as Europe’s major dove

Bloomberg

The franc’s decline to a one-year low suggests the Swiss National Bank (SNB) may only need to stand still to achieve its aim of a weaker currency.
Major central banks across Europe are hinting at unwinding monetary policy stimulus, leaving the SNB among a shrinking dovish camp. UBS Group AG and Nomura Holdings Inc. predict further downside for the Swiss currency, after it broke through a key technical level at 1.10 per euro and dropped to its lowest since June 2016.
“If the rest of the world is offering higher rates and the Swiss National Bank stays behind the curve, then intuitively you want to diversify to those assets and away from zero-yielding or negative-yielding Swiss francs,” said Lefteris Farmakis, an analyst at UBS, in emailed comments. Now that there are no longer severe political risks in the euro zone, there are no reasons to hold Swiss francs, with UBS targeting 1.13 for the end of the year, he added.
That may be a relief for SNB’s President Thomas Jordan, who said last month the franc remains overvalued and saw no change in the stance of the bank, which has been using negative rates plus foreign-currency purchases for over two years to limit its appeal. Options bets signaled expectations for a fall, with the premium for one-week calls on the euro against the franc relative to puts at the highest since February 2016 on a closing basis.
The Swiss franc fell 0.1 percent to 1.1015 per euro in London, its fourth day of losses. The break of the 1.10 threshold was mostly a technical reaction stemming from the derivative market, as “tons of options” have been written with a strike price around that level, said Arnaud Masset, a market analyst at Swissquote Bank SA.
On technical charts, the pair is testing the 78.6 percent of the Fibonacci retracement of its drop in June 2016 at 1.1003. However, gains for the euro may not be straightforward as the pair moves within a very tight range among Group-of-10 peers.