SNB bashing seems to be more monotonous for now. If the current SNB policy is not sustainable from a fundamental point of view an efficient market should enforce a change. That may be painful in short term, but long term inefficient markets are much worse.

So why is there no more notable pressure on EURCHF?

Because the mechanics of speculative (and therefore efficient) markets have been suspended.

You would like to see some proof, look at the EUR base (or that of many other currencies). It illustrates that the mother of all no-arbitrage conditions, covered interest rate parity (CIP) no longer applies.

You may have come across many clever pieces on why the basis is not zero. But there is one fact that none of these papers can explain: the lack of speculative fire power that would create market efficiency.

And if no-arbitrage conditions have been breached how is the market going to bring about the end of a non-sustainable exchange rate policy pursued by a central bank? In particular, if nobody admonishes them permanently.

That is where we emphasize upon, Yesterday Fritz Zurbrügg, the member of the SNB governing board, was once again quoted with the usual morale-boosting phrases. The SNB had proven in the past that it takes the necessary steps to fulfill its mandate. Of course, so far. And perhaps for much longer. But not sustainably.

It has to accept an “uncontrolled extension of its balance sheet” – just as was the case during the 1.20 regime. It does not have any other tools to prevent the appreciation of CHF.

The same report that quotes Zurbrügg refers to the fact that the majority of analysts is convinced: there will be [and can be] no further SNB rate cuts [at least on a long term basis] any longer [within the framework of legitimate monetary policy].

Hence, we recommend low vols strategies for EURCHF, such as butterfly and condor spreads, take profits on long CHFJPY and rotate into short EURCHF.

Market attention on political risks should move from the US to the Euro area given upcoming elections in the region, while the combination of a ballooning balance sheet and a mention in the US Treasury’s monitoring list has the potential to make the SNB pare intervention in FX markets.

Position for a brief period of consolidation in CHFJPY by selling a 1-month unhedged straddle

New trades: Short EURCHF outright and short 1m CHFJPY straddle.