Bank of America: CHF risks & USDCHF quarterly forecast


03 March, AtoZForex, London – The Swiss Franc appears to be reverting back to its usual type as risks become localised. Bank of America Merrill Lynch (BoAML) has highlighted how the CHF is no longer the currency of choice when searching for safe haven assets during recent bouts of global market volatility.

This main driver behind the view was the deterioration in Switzerland’s balance of payments falling into negative territory in Q3 2015. “However, we have been cognizant of the risks of safe haven inflows into Swiss assets as a result of any shocks within close geographical proximity to Switzerland,” Bank of America added, expect to hear more about such inflows.

Moreover, the sell-off in European bank stocks, which have widened European credit spreads and increased mounting concerns over solvency and funding of banks, have provided a catalyst for renewed focus on the CHF. This increase in localized risk is posing upside risks to the short term CHF outlook.

EURCHF and USDCHF quarterly forecast

Although the CHF has staged some recovery in recent weeks, Bank of America Merrill Lynch maintains its medium term CHF bearish forecast.

“Based on our framework of overvaluation and deteriorating external fundamentals, we see risks for further near-term gains as global risks become increasingly regionalized but refrain from making any immediate forecast changes to EURCHF,” BoAML projected.

Bank of America targets EURCHF at 1.09, 1.10, and 1.11, for the end of Q1, Q2, Q3, respectively while expecting the pair to remain unchanged at 1.11 for Q4 2016. Meanwhile, the USDCHF quarterly forecast is at 0.99, 1.02, 1.06, and 1.11 over the same periods of time.

CHF Risks

The Swiss Franc faces increased localized risks. “A further intensification of the European banking crisis which leads to concerns about liquidity and solvency could lead to a more precipitous rally in CHF triggering sizeable safe have inflows into the country,” BoAML noted. This would undoubtedly result in an SNB response.

Also see: Bank of America: USDJPY forecast & strategy to 100

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