SNB playing the long game

EUR/CHF has remained anchored within its recent 1.03/1.06 trading range but began to drift lower during the second half of the month. The SNB maintained its policy stance at its quarterly meeting and delivered its' by now familiar rhetoric that it stands ready to intervene in the markets should the need arise. 

Yet despite the continued weakness in macro-economic data, the CHF effectively remains a geo-political trade and more specifically a hedge against events in Greece. The SNB must, however, take some credit by the very fact that EUR/CHF has effectively traded a range through much of Q2 at the very time where events in Greece have taken a turn for the worse. 

The SNB continues to believe that the normalization in financial markets will eventually lead to a weaker CHF, a view that we share. But to the extent that EUR/CHF has not come under more precipitous pressure during the latest Greek saga perhaps vindicates the current SNB monetary policy stance and puts into context the decision tomaintain policy at current levels despite further deterioration in Swiss macro fundamentals. 

Against the current backdrop, little reason is seen to suggest a sea change in sentiment towards the CHF. However, medium-term bias for a weaker CHF remains and against the backdrop of the policy divergence framework, a long USD/CHF position via options has been initiated, says Bank of America.