CHF: SNB likely remains active - Nomura

In view of the analysts at Nomura, the SNB is likely to be active in the FX market as EUR/CHF depreciation pressures increase ahead of euro area political events.

Key Quotes

“Further accumulation of SNB reserves is likely, and its diversification may attract market interest. Our analysis shows that, historically, a month after SNB intervention, JPY and USD tend to outperform, while NOK and NZD tend to underperform.”

“Uncertainty on European politics remains high. As a result, EUR/CHF has been trading heavily, leading us to think the SNB is likely active again in the FX market, attracting market interest.”

“We estimate that the Bank bought CHF9.6bn of foreign currency in January. This is still less than its estimated intervention in November 2016 (CHF21.3bn), but the SNB is likely to be active again after temporarily pausing intervention in December. The SNB sight deposit data show a further increase in the outstanding so far in February, from CHF532.8bn as of 27 January to CHF543.5bn as of 17 February. This leads us think the SNB remains active amid the high political uncertainty.”

“We expect EUR/CHF to continue to face depreciation pressure over the next few months, as 1) political risk increases safe-haven demand, and 2) the real rate in Switzerland is higher than in the euro area. Unless the SNB shows strong determination to avoid CHF appreciation by proactively cutting its policy rate at the next meeting on 16 March, the Bank is likely to be forced to intervene in the foreign exchange market continuously. This intervention could slow the pace of CHF appreciation, but it is difficult to change the trend, in our view. We see a risk of EUR/CHF testing 1.05 and even further downside.”