Asymmetrical risk trade: No FOMC hike: Long EUR/CHF to 1.1140

FX:EURCHF   Euro / Swiss Franc
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Full Thoughts:

When conviction is super high, trades get crowded and markets get one-sided. Um, remember the 5+ sigma move in EUR/USD             post Draghi's disappointment, last week? One-sided markets offer great opportunities for asymmetrical risk.

Yes, longs got burned a la Draghi, but the market still sees global monetary policy divergence as a stedfast theme, albeit to a lesser degree. Dollar strength doesn't lie with a single rate rise. Instead it relies on the expectation of subsequent rises following the commencement of lift-off. A surprise fold, would push lift-off another 6 months down the road, too far into the future for dollar-longs to finance the trade as vigorously.

Short USD is the first-level trade. Where can we find more beta? Maybe EURUSD? Equity markets expect a hike, and par for that expectation will be bullish for stocks = Short EUR and buy US stocks. Folding will firstly be fundamentally bullish for the EUR/USD             cross and secondly bearish for equities, which will further strengthen EUR/USD             due to carry trade unwinds. USDCHF? With the world's lowest interest rates (-0.75%), it makes sense that if the Fed doesn't move, you'll see outsized strength in CHF. Combining the two, go long EUR/CHF             .
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