FX:EURCHF   Euro / Swiss Franc
SNB President T. Jordan comment highlights:

- If Needed, Can Cut Rates Further - 50bps to 1.25% possible until negative rates turn less effective
- €˜Big Concern€™ Over Significantly Overvalued CHF in 2016 risk-off dominated year
- CHF 3m Libor prices 80% chance of a 25bps cut (-0.75 to -1.00%) within 3 months (was only 40% before brexit)
- Low bond yields not ideal for foreign-reserve management
- Swiss central bank president currently doesn’t see need to act/ adjust policy, despite risks
- Survey shows CHF needs to rise to 1. 05 before rate cut

President T. Jordan G20 Quotes:

1. “We are monitoring the situation very carefully: what are the consequences for inflation and growth in Switzerland, what are our policy options,”

2. Regards to ECB/ BOE future policy - “The franc remains significantly overvalued, it’s a big concern for us.”

3. “The low level of interest rates is of course not ideal for foreign-currency reserve management, but monetary policy is expansionary everywhere,” Jordan said. “That’s an environment we can’t change and we have to adjust our investment policy accordingly.”

4. “There clearly are risks,” but “whether they materialize or not is not in the hand of Switzerland,” he said. “It depends on the decisions Europe will take and how strongly they will affect the global economy and financial markets” and “we hope, of course, that sensible decisions will be taken.”

Trading strategy:

1. Looking at the 1.08 level it looks like there is some clear SNB defence of this level, which is consistent with the SNB's comments that they have intervened at this level in the past (e.g. brexit).

- So an easy strategy is to buy any <1.08 dips, with a 1.088-1.09tp as it looks as if there is some consistent buying from the 1.08 level to the 1.09 level so take advantage of this trend, lower the better, as it certainly looks as if the SNB is engaging in intervention at this level and will continue to do so - even if not officially as in the past with the 1.20 level.

2. Bloomberg Poll see's a definite SNB 25bps cut if the EURCHF drifts to the 1. 05 level - so beyond buying 1.08 dips with perhaps 1lot, i advise strongly buying 1. 05 and less dips with say 2-4lots based on heavy FX intervention directly or rate based if we were to such low levels. TP can be placed at the 1.08-9 level still

- In terms of cutting capacity, also polled by BBG showed that the SNB has room for another 50bps of cuts before its negative policy may turn counterproductive - so this strategy is sound for now.
Comment: Market Pricing update:

- 3m Euroswiss september future now only prices a 28% chance of a 25bps cut by september (down from 80% on the 11th of July - Swiss rates are recovering from deep negative post-brexit lows at -1.02% to trade currently at -0.82%.
Comment: Entry

1. Im expecting some risk-off strength these next two weeks as BOJ failed to deliver the stimulus required to sustain the rally in risk assets we have seen recently.

- Hence we should see some EURCHF selling in which case the buying <1.08 dips pays off. EURCHF dippeed to 107.8 on friday folllowing the news - then low and behold traded 50-70pips higher within the next few hours to 108.5 highs. Basically risk-free money here.

- I advise placing 107.8 buy limits, and I personally have a very heavy buy limit at 107.5 (50pips TP) then 106.5 (150pips TP - from Brexit lows) as these levels will be aggressively brought by the SNB imo.


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