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Goldman Sachs Goes From Bull to Bear on EUR/CHF

For the past few years, forecasting the euro against the Swiss franc was a trivial exercise. Trusting the Swiss National Bank’s commitment to support the 1.20 level between the two currencies, banks consistently rolled over their views expecting the euro to only slightly budge against its Swiss neighbor.

But the forecasting all changed on Jan. 15, when the SNB shocked markets by scrapping its three-year-old exchange rate floor.

As the SNB changed the rules of the game, analysts rushed to re-calibrate their years-old assessment of the fair value of the currency, with most of them expecting the euro to head towards parity. A euro is currently worth 1.004 francs.

But Goldman, whose currencies forecasts are regarded as an industry reference, has now pronounced its latest forecast on EUR/CHF. It’s slashed it by about 26% from a previous forecast, made at the beginning of 2013, when it expected the euro to climb to a punchy 1.28 against the franc.

The bank now expects the euro to fall to 0.98, 0.96 and 0.95 against the franc in three, six and 12 months. That puts it at the bearish end of expectations for the euro. “The near term path of EUR/CHF is lower, given that the safe haven status of the Swiss Franc has emerged stronger from recent developments,” Robin Brooks, Fiona Lake, George Cole and Michael Cahill said in a note.

According to the bank, the SNB has sent two different messages with its decision to “de-peg”.

Not only it has changed expectations for the euro but it has also showed it doesn’t like direct intervention anymore, “in essence shifting monetary policy back to interest rates from balance sheet expansion.”

Looking further along the line, Goldman thinks the euro will revert to around parity by the end of 2016 and to 1.10 one year later.

It’s maybe worth noting that a bearish view on the franc was one of the bank’s key trade ideas for 2015, and that’s already been undone as the currency has surged higher.

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