Forex Flash: EUR/CHF: Where may we go and why? - Nomura
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EUR/CHF
FXstreet.com (Barcelona) - Nomura Strategists Geoffrey Kendrick and Charles St-Arnaud note that with EURCHF reaching fresh post-floor highs they attempt to provide some analysis on the "where to" and "why" questions.
Their fair value approach suggests that a move to 1.26-30 would be consistent with a reduction in Eurozone risk premium witnessed over the past year. In terms of flows, with the risk premium roughly halved, they feel that this would be consistent with half of the safe haven deposits (circa CHF 50bln) being removed.
Although some of these outflows may have already occurred, its more likely that leveraged flows accounted for the bulk of the move last week. As a result, they feel that a move into the 1.26-30 range is still likely. They finish by writing, "However, beyond these flows we would caution against chasing EURCHF higher. Rather the CHF10bn monthly current account surplus and ongoing balance sheet reduction by Swiss banks should eventually see it trade back towards the floor."
Their fair value approach suggests that a move to 1.26-30 would be consistent with a reduction in Eurozone risk premium witnessed over the past year. In terms of flows, with the risk premium roughly halved, they feel that this would be consistent with half of the safe haven deposits (circa CHF 50bln) being removed.
Although some of these outflows may have already occurred, its more likely that leveraged flows accounted for the bulk of the move last week. As a result, they feel that a move into the 1.26-30 range is still likely. They finish by writing, "However, beyond these flows we would caution against chasing EURCHF higher. Rather the CHF10bn monthly current account surplus and ongoing balance sheet reduction by Swiss banks should eventually see it trade back towards the floor."
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