UBS Switzerland AG expects the EUR/CHF currency pair to remain largely range-bound between 0.91 and 0.93 in the months ahead, with the 0.90 level identified as a firm support, the bank said.
According to UBS strategists Constantin Bolz and Clémence Dumoncel, the pair recovered from an initial fall during the US-Iran conflict and moved toward 0.92. That recovery, the strategists said, was underpinned by a revival in risk appetite as markets anticipated a rapid end to the conflict following the current ceasefires.
The bank notes that expectations of rate hikes from the European Central Bank have bolstered the euro, while the Swiss National Bank is expected to keep policy unchanged. Remarks by ECB President Christine Lagarde at the April press conference highlighted upside risks to inflation, the strategists said, and left all policy options open - including a potential rate increase if oil prices stay elevated.
UBS views the EUR/CHF pair as likely to remain supported under most circumstances and judges a revisit of the 0.90 level in the near term to be unlikely. In scenarios where risk sentiment improves, the euro would be expected to strengthen versus the franc, the bank added.
The report also points to the role of oil. If oil prices remain high, UBS said, the yield differential between the ECB and the SNB would widen, which would be supportive for EUR/CHF.
On technical levels, the bank identifies resistance around 0.9275 and then near 0.935 to the upside. UBS said the pair would move toward or breach 0.90 only in a severely adverse scenario, for example a marked equity market sell-off coupled with rising recession risks.
Finally, UBS noted that upside surprises could come from a resolution of geopolitical conflicts, specifically an end to the US-Iran hostilities or to the war between Ukraine and Russia.
Key points
- UBS expects EUR/CHF to trade in a 0.91-0.93 range, with 0.90 as strong support.
- Improved risk sentiment and expectations of ECB rate hikes are cited as primary supports for the euro; the SNB is expected to remain on hold.
- Resistance is identified around 0.9275 and 0.935; downside to or below 0.90 is seen as conditional on a highly adverse scenario.
Risks and uncertainties
- A significant equity market sell-off and rising recession risks could push EUR/CHF toward or below 0.90, affecting financial markets and banking sector stability.
- Persistently high oil prices could alter inflation dynamics and central bank policy differentials, with implications for fixed income and commodity-linked sectors.
- Geopolitical developments - notably the US-Iran conflict or the Russia-Ukraine war - remain sources of upside or downside moves depending on their resolution trajectory.