The Swiss National Bank (SNB) has expressed its readiness to intervene in the foreign exchange (FX) market, citing the current international situation. This move is expected to counter any rapid and excessive appreciation of the Swiss franc. In a previous post, the author highlighted the timing of this announcement, noting that US-Iran tensions are particularly inopportune for the SNB. The question arises: where will the SNB draw the line in terms of intervention, and how far are they willing to challenge market sentiment? The current situation sees the EUR/CHF pair inching closer to the critical 0.9000 mark, with the low earlier today touching 0.9035. Despite the SNB's comments, the pair is still down 0.4% to 0.9053. Morgan Stanley, however, argues that there is still further downside potential. It's worth noting that this view was expressed before the US-Iran conflict escalated. The firm suggests that the EUR/CHF pair could decline to 0.87 over 12 months, with only a 25% probability. This underpricing indicates that long positions in the Swiss franc are attractively priced as a hedge for risk-oriented portfolios and as a safe haven against large, unexpected shocks. Short positions in the EUR/CHF pair are also seen as attractive, with the firm recommending short positions targeting 0.87.
