Rabobank’s Senior FX Strategist Jane Foley notes that the Swiss Franc has underperformed typical safe-haven expectations since the Middle East conflict began, partly due to the SNB’s intervention warnings. Foley highlights 0.90 as a key EUR/CHF level and expects the pair to trade close to this area over a 1-to-3-month horizon, with risks skewed by SNB and ECB policy decisions.

Franc lags classic safe-haven behavior

"Measured from February 27, just before the start of the conflict in the Middle East, the CHF is only the seventh best performing G10 currency. It holds the same position over the past week and on a 1-day view. These are not the data that would usually be associated with a safe haven currency in a crisis, but they reflect the market’s reaction to the SNB’s decision to step up FX intervention warnings at the start of the conflict."

"The SNB’s March 19 policy meeting will be watched closely for any sign that the SNB will step up its rhetoric regarding intervention. The ECB policy announcement on the same day will also be watched since a positive response by the EUR to ECB policy guidance could relieve some of the pressure on the EUR/CHF exchange rate. For now we maintain the view that EUR/CHF will hold close to the 0.90 level on a 1-to-3-month view."

"EUR/CHF briefly traded below the key 0.90 level at the start of this morning’s Asian session. There was also a brief foray below this level on March 9 to the lowest level since Jan 15, 2015. The latter was the date when the SNB unexpectedly stopped protecting the 1.20 level which led to an unprecedented surge in the CHF’s value."

"Although the SNB no longer makes it clear if it is watching a specific level, there is speculation in the market that the EUR/CHF0.90 level could be a ‘line in the sand’ for the SNB."

"We retain the view that EUR/CHF will hold close to this level on a 1-to-3-month view, but an extended or widened crisis in the Middle would elevate the risks of a move below 0.90."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)