FX trade of the week
The dollar is off to a strong start this week and two banks see more to come.
Citi says to buy USD/CHF this week (spot at 1.0101).
"We would point out that recently Swiss rates have turned more negative, leading to our bearish view on the currency. Investors are becoming increasingly concerned what ECB policy expansion will mean for the SNB. 1w and 1m USDCHF risk-reversals are increasingly less bid for puts, highlighting a turn in sentiment in vol space as well.
In terms of event risk, Swiss exports on Thursday hold the largest potential for disappointment. Further down the calendar, Swiss GDP prints the day ahead of ECB, with confidence surveys suggesting a negative print on a quarterly basis.
For crossing with the USD, we don't have immediate event risk we would point to (although there is some top tier data this week), rather we continue to think investors are too relaxed on prospects for further USD strength," Citi says as a rationale behind this call.
In line with this view, Citi recommends buying USD/CHF from 1.0068, with a target at 1.0240, and a stop at 0.9985.
Credit Suisse's weekly pick is short EUR/USD
"We continue to hold on a short EURUSD view heading into the December meetings for the Fed and the ECB.
Minutes this week for both banks should provide a further argument for monetary policy divergence, in our view, with the FED likely sounding comfortable with a rate hike in the near future while the ECB's Accounts could provide some further insight into the possibility to cut rates further," Credit Suisse says as a rationale behind this call.
EUR/USD has just matched the six-month low at 1.0675.
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