Investors see long CHF as the obvious hedge – RBC CM

According to Elsa Lignos, Research Analyst at RBC Capital Markets, little has changed in the last month; but underneath the surface, the SNB has likely been selling substantial quantities of CHF as European political risk has grabbed market attention globally and investors still see long CHF as the obvious hedge.

Key Quotes

“Unlike the UK referendum or US election, we think French election risk is overpriced (though most disagree) and we still have a longer-term bearish CHF view. Whether there is a risk of Switzerland being labelled a currency manipulator by the US, but its bilateral trade surplus is too small to qualify for the Treasury’s criteria (and based on the evidence of the past month, the risk does not seem to have stopped the SNB from selling CHF). If the US did decide to formally label Switzerland a currency manipulator, it would come in the next semi-annual report in April. The kneejerk reaction would be EUR/CHF and USD/CHF lower. But the longer-term direction for CHF is more likely to be determined by other US policies. Our CHF forecasts are unchanged this month.”