MS are long USD/CHF,targeting 1.01. Their reasononing:
Morgan Stanley makes the case that their risk-on call remains intact and has received additional support by the release of weak US labour market data showing disappointing employment growth.
"It seems the strong USD has helped to import deflationary pressures from EM, as seen by the declining 5y5y inflation swap. Here, the Fed would have to be sensitive. A stronger USD by itself is not a sufficient reason to delay hiking rates, but when USD strength slows activity and inflation expectations, the Fed would have to step aside," MS argues.
"A wide spread between the narrow (DM driven) and the broad (EM driven) USD indices should narrow as the anticipated USD decline should mainly work against carry or current account surplus offering EM currencies," MS adds.
"Funding currencies like the EUR and the JPY should underperform within this context. However, due to valuation differentials and Swiss capital export potential now exceeding Japan's capital outflows, we view the CHF as the best funding currency," MS argues.
In line with this view, MS runs a long USD/CHF trade from 0.97 targeting a move to 1.01.
