Swiss Franc Month Outlook (1 – 3 Months)– Still following EZ political risk

SNB chair Jordan continues to call CHF "significantly overvalued" adding "it should therefore weaken over time" and that "in addition, we have emphasized we will become active in foreign exchange markets if required" (interview with Schweiz am Sonntag, May 30). But so far markets are willing to ignore those threats. 

The SNB's credibility is severely dented after its decision to drop the floor - if it were to intervene, it would be much better off waiting for some upward momentum in EUR/CHF and intervening to push the market further up, rather than trying to fight the current trend. EUR/CHF traded lower in May and still attracts a haven bid with fears over EUR exit rising. 

A proposal for Greece has dragged on for months, the final deadline is now less than a month away - without a deal in place by June 30, Greece will default internally, externally and the existing programme will expire. Greece is still expected to stay within the Euro area which means EUR/CHF should bounce by the end of the current quarter and make some further gains in Q3, says RBC Capital Markets. 

On June 18, the SNB meets for its second quarterly meeting of 2015. While a more negative rate has been discussed (e.g. -1.5% from -0.75% currently), there is a real risk that depositors start hoarding physical cash. ASIP - the Swiss pension fund association says its members are considering making mass withdrawals according to the FT (the highest denomination Swiss note is CHF 1000 making it easier to store than any other G10 paper currency). 

No change to policy is expected but there's scope for another downward revision to inflation forecasts. Technically the rejection of the 200dma at 0.9531 indicates another pullback is in store. Support is at 0.9287 and a daily close below here would expose the May double bottom at 0.9072. Resistance is at 0.9448 and 0.9543 with a close above 0.9599 required to end the retracement.