Date: 31 Jul 2017

“Markets are also likely to price little chance of Swiss National Bank tightening for some time,” wrote France’s BNP Paribas last week noting that “EURCHF has surged since late March as a result of declining eurozone political risk premium and the European Central Bank turning more hawkish.” ThomsonReuters IFR made the point Friday that the “January 2015 intraday floor break implosion leaves no historical resistance until 1.20.” Also writing Friday Credit Suisse wrote “EURCHF has surged above the 1.1201 key barrier to signal a more sustained rise to 1.1681 next. Above here would aim at 1.1996/2002, potentially all the way up to 1.2098.” Traders will have their own views on whether the euro/Swiss offers value at current levels or whether there’s a possibility it’s already a crowded trade where the risk is of a pull-back. But perhaps the wider point, and this is perhaps illustrated in Credit Suisse’s note, is that Swiss franc weakness is currently broad-based. It’s not just a euro/Swiss move. Credit Suisse has noted that the “CHF has experienced a broad sell-off and its [Trade Weighted Index as calculated by the Bank of England] has collapsed to remove its medium-term uptrend from 2007 at 160.20.”

The Swiss bank feels that “USDCHF is attempting to set a base above .9702, ” that “CADCHF has established an important medium-term base on its breakout above key resistance at .7771,” that the “AUDCHF spotlight turns to a key resistance area at .7809/23” and that “a break above here would establish a large base for .8168 initially,” and finally that the “NZDCHF focus turns to a key resistance zone at .7286/.7326.” Traders may conclude that the Swiss franc has  become the funding currency of choice of the moment. Those who do come to that conclusion then have to decide both whether the move has further to run and where the value still lies. Euro/Swiss franc may be seen as the simplest way to play the weak franc narrative, but it’s not the only possibility.
Written by Neal Kimberley, External Currency Analyst.