Date: 20 Aug 2018

The Swiss franc has been a beneficiary of recent currency market turbulence as was acknowledged by SNB Vice Chairman Fritz Zurbruegg last week. “The developments in recent days have shown that the currency markets remain fragile, and can lead to safe-haven flows into the Swiss franc, ” Zurbruegg said last Wednesday. By definition therefore, for traders who see continued market turbulence, Zurbruegg’s comments could be seen as helping to justify a continued long CHF exposure with EURCHF a pair that might excite attention. Equally, for traders who feel that market turbulence may be passing, then Zurbruegg’s comments could equally be interpreted as suggesting an unwind of long CHF positions could be in the offing. Intriguingly, although the EURCHF has come off the sub-1.13 lows it was testing the day Zurbruegg spoke, it’s still substantially below the-1.1600-and-above levels seen towards the end of July, perhaps supporting the notion the currency market is not yet convinced one way or the other of the Swissy’s next move. But there is another aspect to this narrative. The SNB might acknowledge why the CHF has risen in value versus the EUR in recent weeks but that doesn’t mean it is comfortable with the situation. The currency market could rationally conclude that unless global risk aversion does ratchet up further, the risk-reward for being long CHF versus the EUR at lower levels of the recent range is less compelling. If so, at that point it is also how traders perceive the wider currency market’s exposure that should begin to influence trading behaviour especially in a scenario where traders also think they know the SNB won’t be overly enthused by the prospect of further CHF appreciation.

by Neal Kimberley, External Currency Analyst.