Via Bloomberg
I came across this piece on Bloomberg making a case for a higher EURCHF. The article mentioned that with euro shorts very crowded now and Swiss FX reserves rising then EURCHF is heading into the 1.15 handle.
Here is the case.
- Euro shorts are crowded. True, in fact they at the largest they have been since 2016. EUR shorts were 105K vs 98K short last week. Shorts increase by 7K on the prior week.
- European growth showed modest improvements in the first quarter. The Eurozone data improved a little earlier in the week, as the slump in German manufacturing hasn't seemed to affect the zone's GDP growth. Prelim GDP was a beat at 0.4% vs 0.3% expected.
- Risk of momentum driven squeeze higher. With one and two being the case there is a risk of a move in EUR/CHF higher.
- SNB see local economy as too fragile for higher rates. True, in the last meeting the SNB downgraded growth and inflation forecasts and were generally downbeat. Read the full report here.
These four points are then combined with a conditional future event (cue picture of the DeLorean)
Swiss FX reserves continuing to rise
With 1-4 being the case, then if Swiss fX reserves continue to rise then EURCHF appreciation will be made even easier. The results are due May 7. This again is a shrewd observation by the article writer. Swiss March foreign currency reserves were CHF 756.0 billion vs 740.6 billion expected and reached their largest levels since April last year. See Justin's report here. See here for a brief explanation on the role of FX Reserves for the CHF.
For the more curious here is the page for the breakdown of the Swiss FX reserves from the SNB below. At present 39% of FX interventions are in EURO's and the other largest currency reserve is the USD (36%)
