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The affirmations on the part of SNB members yesterday that the central bank will stick to its negative interest rates or might even cut rates further were unable to prevent EURCHF from falling further. With a deposit rate of -0.75% there simply is no credible scope from the market’s point of view for further significant rate cuts. That means the only effective tool left to the SNB are FX market interventions. But these too have been implemented rather clumsily recently, when the bank tried a few days ago to drive the EURCHF exchange rate notably up. That was just what CHF traders had waited for, as they were able to buy the franc at attractive levels seeing the current risk-off mood.
As a result, the effect of the interventions was quite short-lived. But at least the central bankers made it very clear that they will go ahead with their interventions tool despite possible pressure from the US administration. Perhaps that was all it wanted to achieve in the first place, and it certainly managed to do that, and indeed, this should help limit the downside in EURCHF longer term.
Trade tips:
On hedging grounds, stay short in EURCHF futures contracts of mid-month tenors, spot reference: 1.0722 levels.
While taking profits on a bullish 3M CHFJPY seagull (11.50/114.50 call spread vs a 106 put). Paid 12.8bp on Nov 28th, squared-off at 1.84%.
Buy a 2-month dual at-expiry digital (USDCHF < 0.9625 & USDJPY > 110.70). Offered at 10.5% vs. 34.1% for the cheapest individual digital (USDJPY leg). Spot references 0.9702 and 109.53 levels.
Short USDCHF from 0.983. Lower stop to 0.9800. Marked at 1.43%.
Long CHFJPY from 113.45 on Jan 14th. Marked at 0.43%.
Short GBPCHF from 1.2575 on Jan 14th. Marked at -0.37%. Courtesy: JPM & Commerzbank
