LONG EURCHF - SNB BID INTERVENTION @ THE 1.08 HANDLE
Long EURCHF - 9/10 Conviction:
1. Having watched the 1.08 level closely post-brexit it certainly looks as if there is some FX intervention going on at the 1.08 handle - suspicions enforced even more as SNB President Jordan has said in the past that FX intervention is on the cards should CHF move even higher when we were around this level previously.
2. Ive been looking for a way to effectively play long euro positioning based on the view that the ECB has come to an end of its record easing cycle, EURAUD bids felt pain in the front end of the week before popping following ECB thus I think EURCHF is a better suited proxy given the ultra low vol.
3. Volatility is also v low so risk of downside is limited, plus SNB are clear they will can intervene so the chance of long-term losses with this trade are close to 0, especially when you look at the price action
4. Over in rates the 3m euroswiss futures differential (dec-march) are implying a 2bps cut with dec -0.76 vs mar -0.78, whilst the 3m euribor implies 0.5bps of hikes with dec -0.31 vs mar -0.315.. both in recent months have experienced significant selling as rate cut hopes have plunged as inflation begins to show some footing especially in Energy.
Trading Strategy - buy EURCHF <1.081 dips 1.09/1.096TP:
1. Buy EURCHF on any dips into the 1.081 level, 100pips TP but it is also advisable to take 50 or by looking at the intra day (1hr) moves even taking 10-20pips is possible several times a day as the market constantly moves higher after ANY dipping below the 1.08 handle.
- i wont be running a stop on this trade given what my opinion of the SNB's commitment is and the very low IV and HV
1. Having watched the 1.08 level closely post-brexit it certainly looks as if there is some FX intervention going on at the 1.08 handle - suspicions enforced even more as SNB President Jordan has said in the past that FX intervention is on the cards should CHF move even higher when we were around this level previously.
2. Ive been looking for a way to effectively play long euro positioning based on the view that the ECB has come to an end of its record easing cycle, EURAUD bids felt pain in the front end of the week before popping following ECB thus I think EURCHF is a better suited proxy given the ultra low vol.
3. Volatility is also v low so risk of downside is limited, plus SNB are clear they will can intervene so the chance of long-term losses with this trade are close to 0, especially when you look at the price action
4. Over in rates the 3m euroswiss futures differential (dec-march) are implying a 2bps cut with dec -0.76 vs mar -0.78, whilst the 3m euribor implies 0.5bps of hikes with dec -0.31 vs mar -0.315.. both in recent months have experienced significant selling as rate cut hopes have plunged as inflation begins to show some footing especially in Energy.
Trading Strategy - buy EURCHF <1.081 dips 1.09/1.096TP:
1. Buy EURCHF on any dips into the 1.081 level, 100pips TP but it is also advisable to take 50 or by looking at the intra day (1hr) moves even taking 10-20pips is possible several times a day as the market constantly moves higher after ANY dipping below the 1.08 handle.
- i wont be running a stop on this trade given what my opinion of the SNB's commitment is and the very low IV and HV
Monetary policy using negative interest rates: a status report
In the current environment, negative interest is necessary and appropriate for Switzerland
Without negative interest, the Swiss franc would rise sharply, unemployment would have risen, and growth would have collapsed
SNB has intervened in the foreign exchange market as necessary since January 2015
Weak inflation and slow economic recovery reason for low interest rates
Historically, Switzerland has always had lower interest rates than the euro area
SNB's negative interest policy has partially restored the interest rate differential to the euro area
Negative interest policy has made the Swiss franc less attractive as an investment currency
Low interest rate environment also presents several challenges for monetary policy