The Swiss franc has been the key underperformer this week amid the lack of market reaction to the outcome of the Italian elections and despite the ongoing focus on trade tensions. A clearly identifiable fundamental trigger for the move appears lacking in the increase in EURCHF this week, which has come despite narrower yield differentials.
We had been short EURCHF for nearly a month as we believed that the SNB will not be far behind the ECB in starting to normalize interest rate policy next year and the economy continues to accelerate.
Nonetheless, with CHF underperforming this week, short EURCHF was stopped out at a loss this week. We remain long CHF vs. USD as an EURUSD proxy, also in the spot on the view that the dollar should underperform other reserve currencies.
Finally, we had also sold a 1m EURCHF put against our now stopped-out cash position in order to monetise the modest risk premium priced in CHF vols ahead of the Italian elections (we didn’t believe that the SNB will sanction a material rise in the franc in the event of a disruptive outcome to the Italian election). We continue to hold on this put on this rationale.
Trade tips:
Sell USDCHF at 0.9354, stop at 0.9560. Marked at -1.64%.
Sold EURCHF at 1.1506 Feb. 9th. Stopped out at 2.08% on March 8th.
Short a 1m 1.1375 EURCHF put, received 29bp February 23rd. Marked at 1bp.
Currency Strength Index: FxWirePro's hourly CHF spot index is inching towards -89 levels (which is bearish). While hourly USD spot index was at shy above -76 (bearish) and EUR at 0 (neutral) while articulating (at 09:57 GMT).
For more details on the index, please refer below weblink:
http://www.fxwirepro.com/currencyindex
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