Swiss franc price forecast September 21 2020

2020-09-21

The SNB can’t handle the franc. Forecast for 21.09.2020Dmitri Demidenko

The Swiss National Bank can be in the same position as the Bank of England was in the 1990s, when George Soros earned $1 billion betting against the central bank. I suggest tracking the SNB meeting and offer a plan to trade the CHF.

Fundamental Swiss franc forecast for this week

An outsider wins when the leader loses. In Forex, this describes the safe-haven currencies, such as the Swiss franc, the Japanese yen, and the US dollar. A drop in the global risk appetite usually drives up the safe-haven demand. If there are global problems, the greenback benefits most of all, while the demand for the franc results from the regional factors. With this regard, the second COVID-19 pandemic wave in Europe and Brexit can suggest a winning investment idea.

The euro-area economic recovery is not that rapid and easy as it was expected. The euro rally seems to be overstretched for several reasons. There is a record rise of the coronavirus cases an increase in the number of hospitalizations, including those aged over 75 in France. The Spanish government is going to test every 7th inhabitant of Madrid and the surrounding area. Moreover, there could be a second lockdown in the UK. The euro strengthening resulted from form the euro-area GDP recovery. This driver seems to have exhausted. The [EURUSD][1] bulls are going to exit the trades.

Dynamics of COVID-19 cases in France and in USA

Source : Trading Economics.

The EURUSD rally and the currency interventions of the Swiss National Bank encouraged the [EURCHF][2] bulls to go ahead in July and August. However, they are set back in September. The SNB’s ability to ease monetary policy is limited. The interest rate is already at -0.75%, which damages the banking system. QE would be a waste of time and money as due to the insignificant scale of the bond market. The central bank could only pour the liquidity into the financial system buying foreign currency. A sure sign of such interventions is the growth of deposits in Swiss banks.

Dynamics of EURCHF bank deposits

Source : Bloomberg

Besides, the fact that the SNB is intervening in the Forex market is signaled by the boost of the central bank’s balance sheet to 848 billion francs in late August, which is close to the record hit in June.

There is no point in fearing the inevitable. The SNB wants to depreciate the franc. However, the [EURUSD][1] drop amid the second pandemic wave in Europe will send the [EURCHF][3] down. Another COVID-19 outbreak is not the only advantage of the Swissie.

The UK Prime Minister Boris Johnson has started a dangerous game trying to force the EU to make concessions by adopting the domestic market bill. Investors have almost believed that the pound will drop to $1.2. However, Ursula von der Leyen, president of the European Commission, said that the EU-UK trade deal was still possible, sending the pound up above $1.29. Franc is usually responsive to the deterioration of the political environment in Europe. The drop in the [GBPCHF][4] encouraged the [EURCHF][2] bears.

[EURCHF][2] trading plan for this week

In addition to the worse epidemiological situation in Europe and Brexit, there is the turmoil in the US stock indexes ahead of the presidential election. So, it makes sense to sell the [EURCHF][2] with targets at 1.07 and 1.065.

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Price chart of EURCHF in real time mode

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