EURCHF price forecast for 2024 as per BofA

In recent trading sessions, there's been a lot of confusion regarding the reversal in the recent EUR/CHF uptrend. Much of the pullback, roughly 38%, has occurred in the week leading up to the European Central Bank’s (ECB) meeting on January 25.

According to BofA’s FX strategists, the Swiss franc has been “reverting to traditional anchors,” and this can be clearly seen in its correlation versus rates.

“Whilst the ECB has not been assigned a significant amount of vol premium, we think investors have taken the opportunity to lighten positioning – YTD winners have been squeezed and as a result, the CHF has recovered some of this year’s losses,” strategist Kamal Sharma said in a recent note.

Nevertheless, Sharma does not think this represents a turning point for the Swiss franc, but rather sees the currency going “back to basics.”

“Investors have been keen to short CHF for some time based on the view that CHF would make the perfect funding currency versus higher yielders. We think this recalibration now gives
that trade a better opportunity,” he wrote.

Given that the G10 countries have lower policy rates compared to Switzerland and the Swiss National Bank (SNB) is increasingly worried about the Swiss franc's strength, it is unlikely that the central bank will let interest rate differences become much more favorable to the Swiss franc. At the very least, they won't allow the Swiss franc to gain advantages from shifts in interest rate spreads.

Also, the sensitivity of CHF to market volatility has been a significant factor in its valuation, but the SNB’s intervention has rendered the franc less responsive to volatility changes. Since the year's end, foreign exchange (FX) volatility has become increasingly influential in determining the CHF's movements, BofA stressed.

“Our broader macro views look for a benign environment for risk in combination with managed slowdown of the global economy. This should be the perfect backdrop for CHF underperformance on a multi-period basis,” Sharma said.

By Vahid Karaahmetovic

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