EUR/CHF: The SNB Intends To Keep Interest Rates Steady For Now
(weve got long for medium-term target of 1.0990)
The Swiss National Bank kept its target range for the three-month Libor at -1.25 to -0.25%, in line with expectations. The Swiss National Bank kept a charge on some cash deposits steady at -0.75%. The SNB said it would remain active in foreign exchange markets to weaken a "significantly overvalued" franc.
Governing Board Chairman Thomas Jordan said the SNB intends to keep interest rates steady for now. In his opinion current interest rate level will continue to support the weakening of the CHF.
The SNB released updated macroeconomic forecasts. What is the most important, inflation was previously seen turning positive in the fourth quarter of 2015 but it is now not seen positive until the first quarter of 2017. The SNB expects inflation to amount to -1.1% in 2015 (vs. -0.1% previously), -0.5% in 2016 (vs. 0.3% previously) and 0.4% in 2017. The SNB halved this-year economic growth forecast from 2% to 1%


The Swiss government cut its growth forecasts for 2015 and 2016. It saw the economy expanding 0.9% this year and 1.8% in 2016. Before the CHF cap ended, it had expected growth of 2.1% this year and 2.4% next year. It forecast consumer prices would fall 1.0% this year before rising 0.3% in 2016.
Swiss exports fell at an annual rate of 3.9% yoy in February in real terms. Sales of drugs and pharmaceutical ingredients, machinery and electronic equipment were hard hit.
The CHF strengthened after the SNB decided not to cut interest rate further below zero. The outlook for the Swiss economic growth is very weak now and we expect long-term trend of the CHF depreciation against the EUR even without support from the SNB. The CHF is likely to weaken also on carry trading and improving global risk appetite.
We got long on the EUR/CHF at 1.0570 and set the medium-term target at 1.0990. The stop-loss is set below lows from February, at 1.0400.