• Far right could regain lost votes

• EU-Swiss talks to resume after election

• Election impact on Swiss franc could be limited

Switzerland rarely makes headlines but the Federal election, which is scheduled to take place on Sunday October 22 might be worthy to have a look even though the impact on the Swiss Franc could be negligible.

The Swiss Federal Council

The Federal Council, a seven-member government board, assigns two seats to the three largest parties and one seat to the fourth largest party. Interestingly, the Federal council presidency rotates annually, subject to election by the Federal Assembly. Hence, the president is leading but has no more power than the other six governing members or, in other words, he is not the head of the state.

Election polls

Recent polling suggests the popular far-right Swiss People’s Party will remain at the top with 28% of votes, preserving its two seats. The pro-European Social Democratic Party will probably remain the second largest party with 18% of votes. The centrist FDP Liberals could compete for third place with the Center party, leaving the environmentalist Green Party, which faced a surprising surge during the 2019 election, probably outside the Federal council.

Why the Swiss franc may not react

If forecasts are correct, the far-right Swiss People’s party will probably regain lost support from 2019 due to rising immigration concerns and the increasing health insurance costs. But overall, the results are not expected to lead to a sharp shift to the right as polls in Germany, France and Italy are showing, especially if the Greens give their seat to a centrist party. In this case, the election will be considered as a corrective vote.

As regards the reaction in the markets, the election results may not shake the safe-haven Swiss franc, unless there is a surprise huge deviation from the polls and an aggressive shift to the right, which could complicate relations with Brussels.

EU-Swiss political tensions

In 2021, Switzerland walked out of a seven-year-round of talks with the EU over closer trading relations, which would replace the existing 100 bilateral treaties with a new framework despite being offered better terms than the post-Brexit deal the UK was offered. A solution has yet to be found, and the process has been further delayed because of elections.

The final ballot (new Federal Assembly) will be determined in a vote on December 13^th, when all 246 deputies will be elected. But with European parliamentary elections looming in June 2024, this leaves the two sides with just a couple of months to find common ground before talks start all over again.

It’s worthy to note that Switzerland depends heavily on bilateral agreements with the EU, while its universities desire access to the EU’s Horizon funding programs. In addition, if energy supply problems worsen in Europe and become broader, negatively affecting Switzerland, the Swiss government could be less willing to go against the EU and start new disputes with the block.

EUR/CHF

In FX markets, EURCHF has been set on a bearish course since the start of the year, erasing the rebound from the multi-year low of 0.9400 registered in September 2022. Technically, the price is trading within the oversold zone, making an upside correction likely in the short-term. Still, if the bears strengthen the downtrend below the 2022 bottom of 0.9400, the 0.9300 and 0.9200 psychological levels could next come on the radar.

Otherwise, the pair will have to crawl back above the resistance trendline from June 2022 at 0.9630 and then extend sustainably higher than the 200-day SMA at 0.9750 to signal a positive trend reversal.