CHF: Possible reversal? – Deutsche Bank

Deutsche bank analysts suggest that at current spot levels, risk-reward favours longs in EUR/CHF.

Key Quotes

“While Brexit and trade war outcomes look like coin tosses, the impact is likely to be asymmetric as the SNB caps the left tail. While a relief rally would be fully accommodated, they would likely intervene heavily and cut the policy rate in the event of no deal.”

“Last week's change to the tiering system prepared the ground for emergency rate cuts by buffering Swiss banks more generously from negative rates. Adding to the asymmetry, net positioning in the Swiss franc is as extreme as going into the French presidential election. Similar to that episode, a relief rally on positive political outcomes could turn into a sustained trend in EUR/CHF as positioning normalizes.”

“More broadly, investor positioning across safe-haven assets is stretched and vulnerable to calmer markets in the fourth quarter.”

‘More speculatively, EUR/CHF is ideally placed to benefit from any German fiscal surprises. It not only has high beta to bund yields but more broadly trades as a proxy for the German euro. Political momentum for green investment is accelerating. If catalysts such as the SPD leadership election and mid-term review in early December rocked the grand coalition, the market should start pricing the prospect of a more fiscally proactive coalition involving the Greens.”