Oliver Harvey, Macro strategist at Deutsche Bank, notes that the Swiss sight deposit data suggested another sharp pick-up in intervention from the SNB last week, with an additional CHF 4.5bn of franc liquidity created after an increase of over 7bn in the previous fortnight.
Key Quotes
“1.06 appears to be the new unofficial floor for the central bank, but we don’t see a defense of this as sustainable.”
“First, the fundamental reasons for franc appreciation remain strong. Latest data show that Switzerland’s broad-based balance has now moved into positive territory on an annualized basis. A lack of domestic outflows remains the source of marginal CHF demand, with Swiss purchases of foreign debt retreating back to zero and equity outflows almost as subdued. Our cross border M&A monitor also shows a big pick-up in cross-border inflows so far this year. There is a limit to how far the SNB can continue to recycle the current account surplus given costs to the banking sector are rising and deflationary pressures easing. Swiss CPI at last turned positive in January.”
“Second, European political risk may return to haunt the SNB. Peripheral spreads have widened in anticipation of French and Italian elections and the close relationship between these and SNB intervention over the last two years suggest that investors concerned about euro redenomination risk continue to see Swiss assets as a safe-haven. This is also being reflected in the options market, with the three month EUR/CHF risk reversal falling sharply in recent weeks to levels previously associated with periods of major Eurozone stress.”
“Finally, the trade still seems lightly owned. Despite the move in the risk reversal, speculators remain short according to IMM positioning (albeit shorts were pared significantly last week), probably reflecting CHF’s use as a funding currency for carry trades.”
“In sum, selling EUR/CHF remains one of our favorite trades, and would also benefit from rising Eurozone political risk premia. Stay short, targeting parity.”
Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers. The author will not be held responsible for information that is found at the end of links posted on this page.
If not otherwise explicitly mentioned in the body of the article, at the time of writing, the author has no position in any stock mentioned in this article and no business relationship with any company mentioned. The author has not received compensation for writing this article, other than from FXStreet.
FXStreet and the author do not provide personalized recommendations. The author makes no representations as to the accuracy, completeness, or suitability of this information. FXStreet and the author will not be liable for any errors, omissions or any losses, injuries or damages arising from this information and its display or use. Errors and omissions excepted.
The author and FXStreet are not registered investment advisors and nothing in this article is intended to be investment advice.
Recommended content
Editors’ Picks
GBP/USD recovers modestly from multi-month lows, stays below 1.2300
GBP/USD erased a small portion of its daily losses after dropping to a fresh multi-month low below 1.2250 on the Bank of England's dovish surprise. With Wall Street's main indexes trading deep in the red, however, the USD holds its ground and doesn't allow the pair to recover above 1.2300.
EUR/USD holds near 1.0650 following mixed ECB commentary
EUR/USD continues to fluctuate at around 1.0650 in the American session on Thursday. Mixed comments from European Central Bank policymakers on the rate outlook and the cautious market mood doesn't allow the pair to gather recovery momentum.
Gold trims weekly gains, trades around $1,920 Premium
XAU/USD extended its weekly decline to $1,913.91 as the US Dollar kept marching higher following the Federal Reserve (Fed) decision to keep rates unchanged, but remark rates will remain higher for longer. Also, the Fed left the door open for one more rate hike this year. Chair Jerome Powell said the focus is on a soft landing, suggesting they are still struggling to avoid a recession.
Tether increased its secured loans in Q2 despite commitment to reduce lending
Tether Holdings has resumed the lending of its stablecoins in the form of secured loans to clients after announcing that it is set to wind down this practice less than a year ago.
Fed Dot Plot puts more pressure on DJIA
The Dow Jones Industrial Average (DJIA) has pulled back 0.51% so far this week, losing most of the ground after the Federal Reserve press conference on Wednesday. The US central bank once again paused interest rates but raised the specter of another hike before next year.