BUY, Enter, Target 0.9980 (+1.50%), Stop 0.975 (-0.81%), risk award 1.88x, Tenor: 3 months
Last traded price: 0.9830
Bearish price action continues to build on CHF, which closed at 0.9825, down by 2.59% in the past 3-week time. With the projected intervention from the Swiss National Bank, Swiss Franc stays weak in the medium run. The June Brexit Shock triggered Swiss Franc to regain its safe-haven demand against its GBP pair, jumping with 6.56%. However, CHF lost 1.7% against its USD pair to 0.9735 simultaneously. In the wake of SNB’s intervention, CHF crashed further to the current 0.9830. In medium run, it is believed that CHF would continue its weakness as of the following factors: (1) SNB’s intervention to devalue CHF; (2) Strong USD
SNB’s intervention to devalue CHF
SNB stays active in FX market to depreciate CHF as Thomas Jordan, SNB’s chairman pledged to reduce pressure on CHF which stays overvalued. On 4th July, SNB had been reported to go on its largest foreign-currency buying since January 2015 in light of the Brexit referendum. To protect its export to Eurozone, Switzerland’s biggest trading partner, SNB’s governor vowed to halt appreciation of the franc in the latest interview, added that the SNB is ready for further easing. Amidst SNB’s willingness to intervene in the foreign exchange market and its stimulus monetary tools, easing pressure on CHF remains in the medium run.
Strong USD
The possibility of Fed rate hike remains as US retail sales data turns up. Despite hitting one year low at May, US Dollar Index consolidated and surged for 3.8% to 96.08 in the two-month period. If we go back to macro-metrics, not difficult to for us to notice that U.S. economic growth is in good shape. Retails sales in June records 0.6% improvement despite forecast of 0.1%; U.S. ISM Manufacturing PMI improved further to 53.2, up from 48 at the beginning of the year indicating the production sector remains strong; Inflation stays good with growth in PCE price index stabilized at 1.6%, improved from 1.4% at the start of 2016. Nevertheless, in the face of global uncertainty including Brexit, Fed held on raising rates. If U.S. data continue to improve, it may encourage the Fed to continue its rate hike path at year-end remains. A strong Dollar may in turn hurt the value of CHF.
Upside Risk: Strong Switzerland’s macro-metrics; Weak SNB’s stimulus; Geo-political uncertainty which regains CHF’s demand as a safe-haven currency; Dovish takes lead at FOMC
Catalyst: FOMC, SNB, BoE, ECB’s meeting