After the SNB policy pivot, this move was very much inevitable considering the market environment. But now that we're finally here, what is next for EUR/CHF moving forward?
For all the talk by the ECB to start normalising policy, the SNB pretty much showed that actions speak louder than words. And that is evident in how markets took the Swiss central bank decision two weeks ago. The franc has been the top performer in the major currencies space and the question now is, will it continue to soar higher?
If we go by the technicals, this may shape up to be a pretty straightforward trade. There isn't much key support below parity for EUR/CHF and the trade would be to stick with it the momentum so long as the market mood and central bank landscape remain as they are.
That said, when it comes to the franc, it's tough to just focus on the technicals when the SNB is also at play. As much as they keep inflation under control, choosing to stand their ground by doing so with a stronger currency is a bit of a peculiar one. That especially considering the factors impacting inflation are mostly "third party" i.e. things that central banks are not able to address.
In any case, with EUR/CHF sticking its neck below parity, one can perhaps expect the SNB to play a more active role in limiting franc gains. That is something to look out for.
As for trading this week, month-end flows may also be a factor in the latest run higher in the franc so there's that.
But on the balance of things, there is scope for a further extension in franc gains so long as the SNB doesn't backtrack on its policy pivot and the ECB continues to only try to put out fires as and when they show up. The key risk is intervention from the SNB in trying to smooth or limit the appreciation of the swissie.
