The Swiss National Bank appears comfortable with the franc's weakness during the Middle East conflict. UBS believes the SNB has intervened in the FX market, disrupting intermarket relationships. How long will it last? Let's explore this and make a trading plan for EUR/CHF.
The article covers the following subjects:
Major Takeaways
- The franc has broken its correlation with the S&P 500.
- The SNB continues to avoid commenting on FX interventions.
- A new energy crisis could weigh heavily on the euro.
- Selling EUR/CHF from 0.922, 0.92, and 0.916 remains relevant.
Weekly Fundamental Forecast for Franc
Breaking things is easy; restoring them is much harder. The Middle East conflict is disrupting previously stable correlations. The Canadian dollar is falling during the oil rally, while the franc and gold are weakening amid declining global risk appetite. While the weakness in gold can be explained by a stronger US dollar and the need for liquidity to meet equity margin requirements, the surge in USD/CHF and EUR/CHF is harder to interpret.
So what is really driving this? Is the franc's weakness during the Middle East conflict the result of broken intermarket correlations, or is it due to FX interventions? The SNB had already hinted at interventions in early March, yet Martin Schlegel declined to confirm whether the central bank had stepped into the FX market. He noted that things had unexpectedly gone very well and suggested investors wait for the June report on the SNB's currency operations.
USD/CHF and S&P 500 dynamics
Source: Trading Economics.
According to Martin Schlegel, when the SNB intervenes, it does so strictly for monetary policy purposes, not to boost the competitiveness of domestic producers. Minutes from the latest SNB meeting indicate a preference for selling the franc rather than cutting rates below zero. The SNB noted that the threshold for cutting rates below zero is high, but it would act decisively if needed.
UBS believes the SNB intervened in March, purchasing $3.2 billion in foreign currency. The amount may seem modest, but if used effectively, it can help guide USD/CHF and EUR/CHF in the desired direction.
What's next? The futures market expects Switzerland to keep rates unchanged through 2027, so monetary policy is unlikely to provide clear signals. However, the franc may eventually regain its safe-haven status. Goldman Sachs shares this view and advises investors to look at the 2022 pattern. Between March and June of that year, the euro strengthened against the franc from parity to 1.05, a gain of about 5%. This was followed by a sharp decline, with EUR/CHF falling to 0.94 by September.
Back then, Europe faced an energy crisis. History may repeat itself, as a potential closure of the Strait of Hormuz could drive oil and gas prices higher. While the SNB remains a key player, Japan’s experience with FX interventions shows that even large-scale actions may not be enough to control the market. Timing will be crucial.
Weekly Trading Plan for EUR/CHF
In this context, the scenario from four years ago may well repeat itself. The Middle East conflict shows no signs of ending, and the eurozone economy is already feeling the pressure. Conditions may worsen. This supports selling EUR/CHF on rebounds from resistance at 0.92 and 0.922, or in the event of a confirmed breakout below the 0.916 support.
This forecast is based on the analysis of fundamental factors, including official statements from financial institutions and regulators, various geopolitical and economic developments, and statistical data. Historical market data are also considered.
Price chart of EURCHF in real time mode
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