Swiss Franc Rally May Stall as SNB Risk Is Back on the Radar
(Bloomberg) -- The franc's latest surge may lose steam for now amid signs the Swiss National Bank is back in the market to rein in exchange-rate gains that eat into inflation.
The currency fell for a second day Wednesday after data showed that the SNB's sight deposits, seen as an early indicator of its intervention, jumped last week in the second consecutive sizable increase. Furthermore, an escalation in the U.S.-China trade war now appears better priced in, potentially reducing the haven bids that helped the franc beat all major peers in the past three months.
Technical charts and option pricing also seem to support this prospect.
Against the franc, the euro completed a bullish candle chart pattern Tuesday, the so-called Morning Star, after it met support from its trend channel since May on Monday. Momentum studies are on the verge of sending a reversal signal while option traders are already positioned for the risk of a stronger Swiss currency, possibly leaving little room for further allocations.
Swiss Franc May Showcase its Haven Status as SNB Plays It Safe
To be sure, the franc may rise to fresh cycle highs versus the euro should a full-blown global currency war develop or demand for short positions in the common currency against emerging-market counterparts pick up again. Yet chances are that another big move may not materialize until the European Central Bank meets in September.
The franc gained more than 4% versus the euro in the past three months as investors sought safety in the Swiss currency amid global trade tensions that threatened to worsen an already downcast global growth outlook.
- NOTE: Vassilis Karamanis is an FX and rates strategist who writes for Bloomberg. The observations he makes are his own and are not intended as investment advice
To contact the reporter on this story: Vassilis Karamanis in Athens at vkaramanis1@bloomberg.net
To contact the editors responsible for this story: Ven Ram at vram1@bloomberg.net, Anil Varma
©2019 Bloomberg L.P.
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