We previously highlighted the significance of the 1.10 level for EURCHF – a level which would likely trigger intervention from the SNB. The central bank has previously sought to weaken the franc when EURCHF has been below this level and, despite an arguably weaker appetite to do so now in light of a heavily inflated balance sheet, a refusal to intervene would throw into question the credibility of the inflation target.

EURCHF has traded down to the 1.08 area and we are now starting to see a significant increase in weekly sight deposits (the amount of cash held by banks at the SNB). As the chart below shows sight deposits have been increasing at the fastest rate since the first quarter of 2017. For the time being the scale of the apparent intervention still pales in comparison to the volume seen in 2014, but the SNB could soon have to scale up its efforts as global economic risks intensify. Indeed, with the tit-for-tat US-China tariff escalation becoming increasingly erratic, Brexit looming and the European economy stuck in a soft growth patch, demand for safe-haven assets will keep CHF well bid.

(Click on image to enlarge)

Source: Bloomberg, Macrobond, Variant Perception