FxWirePro: Spotlight On Vols Trades Via 6M EUR/CHF Put And USD/CHF FVAs

Despite the broader uptick in DM FX vol so far in February though, CHF vol underperformed this week despite EUR establishing multi-year lows in the spot market. Still, this does not obstruct our longer-term thesis that, with the SNB remains sidelined, the EURCHF price-finding process could evolve at an accelerating and non-linear pace and should thereby elicit a simultaneous rise volatility.

For now, the SNB continues to appear reluctant to resist CHF strength despite EURCHF touching multi-year lows (refer above chart), leaving the onus of recycling Switzerland’s large current account surplus squarely on private investors where capital outflows remain muted. 

The recent PMIs may temper enthusiasm for EUR-downside in the short-term, but the fact is that the economy as a whole remains fragile and is still not particularly conducive to encouraging such outflows away of Switzerland. Indeed, CHF vega is likely to rise even despite lesser-than-expected fallout from the coronavirus, given that it is instead more of a consequence of Switzerland's ongoing BoP disequilibrium. 

We remain long CHF vol through combined positions in a EURCHF put and long USDCHF FVA. Courtesy: JPM