FxWirePro: Derivatives Trades For Swiss Franc For H1’2020

The better opportunities are identified by idiosyncratic factors rather than generic beta exposure to general global reflation. This has informed a concentration of long risk in CHF.

There are better opportunities to own European reflation in CHF as there is an independent set of drivers that reduces Swiss beta to global growth.

Long CHF was already our single biggest position and we have added to this following the US Treasury's decision to put Switzerland back on the FX manipulation watch-list. This has highlighted constraints on the SNB's ability to intervene to sustain one of the largest BoP imbalances in modern history. 

USDCHF 3M3M fwd vols were at multi year lows when we opened this as one of our 2020 Top Trades as a way to own US political event risk ahead of the Democratic primary season. Historically cheap entry levels haven’t of course insulated the trade from the intervening period of dollar drift, and the trade is hence now on the back foot as we approach the start of the primaries. That being said, the narrower polling for the initial primaries does offer some prospect of market-moving surprises (Biden is on 20.7% in Iowa vs. Saunders at 20.3% and Warren 16%). 

In addition, CHF volatility should derive some specific support from the heightened discussion around SNB intervention policy. Historic intervention has not only depressed the CHF exchange rate, it has also served to suppress volatility. This international impediment to intervention, if this is indeed what the Treasury decision represents, should therefore be regarded as innately bullish for spot and vol. 

Strategic AUD short: AUDCHF put spread financed through a AUDNZD put spread
This is a part hedge to pro-growth trades which shouldn't necessarily lose money if Euro area growth does step up. AUDCHF is vulnerable to RBA QE, while AUDNZD will be supported by pressure on the RBNZ to match the RBA to maintain competitiveness.

Long a 6M AUDCHF 0.66 / 0.64 put spread, short a 6M AUDNZD 1.03 put. Paid 38bp AUD Nov 26th. Marked at 22 bps.

Stay long volatility via USDCHF FVA, Bought 3Mx3M USDCHF FVA @5.85 in November. Marked at 5.06 vol pts. Courtesy: JPM

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