13 May 2015
Forex News: CHF weakness our base case, but watch Greek developments – BAML
FXStreet (Barcelona) - CHF correlates well with Greek bond yields, and remains sensitive to increased risk aversion, explains Myria Kyriacou, FX Strategist at BofA-Merrill Lynch, and further remains bearish on CHF.
Key Quotes
“Following the fireworks witnessed at the start of this year,EUR/CHF has settled into a 1.00/1.10 trading range for the past three months and 3mth EUR/CHF implied volatility is now trading below 10%, among the lowest in G10.”
“EUR/CHF looked to be steadily recovering through February, but another bout of "Grexcitement" has temporarily stalled momentum.”
“The pair correlates well with Greek bond yields, and CHF remains sensitive to increased risk aversion. The Greek saga continues and could get worse before it gets better. The May Eurogroup did not lead to a deal, as expected, though negotiations appear to be making better progress and the 12 May payment to the IMF has been made.”
“The cash situation in Greece looks increasingly precarious, however, and we have recently argued Greece is likely to run out of cash by June, if not earlier. Any further deterioration in the situation could trigger renewed CHF strength.”
“Conversely,any move toward a meaningful resolution would alleviate pressure on EUR/CHF.”
“The negative deposit rate appears to have had some effect already, partially correcting the significant CHF overvaluation following the abandoning of the EUR/CHF floor. Should this lead to at least some capital outflows out of Switzerland, this should gradually weaken CHF.”
“We expect the SNB will stay vigilant and act as needed to counter sustained CHF strength, with action becoming more likely if EUR/CHF moves back toward parity.”
Key Quotes
“Following the fireworks witnessed at the start of this year,EUR/CHF has settled into a 1.00/1.10 trading range for the past three months and 3mth EUR/CHF implied volatility is now trading below 10%, among the lowest in G10.”
“EUR/CHF looked to be steadily recovering through February, but another bout of "Grexcitement" has temporarily stalled momentum.”
“The pair correlates well with Greek bond yields, and CHF remains sensitive to increased risk aversion. The Greek saga continues and could get worse before it gets better. The May Eurogroup did not lead to a deal, as expected, though negotiations appear to be making better progress and the 12 May payment to the IMF has been made.”
“The cash situation in Greece looks increasingly precarious, however, and we have recently argued Greece is likely to run out of cash by June, if not earlier. Any further deterioration in the situation could trigger renewed CHF strength.”
“Conversely,any move toward a meaningful resolution would alleviate pressure on EUR/CHF.”
“The negative deposit rate appears to have had some effect already, partially correcting the significant CHF overvaluation following the abandoning of the EUR/CHF floor. Should this lead to at least some capital outflows out of Switzerland, this should gradually weaken CHF.”
“We expect the SNB will stay vigilant and act as needed to counter sustained CHF strength, with action becoming more likely if EUR/CHF moves back toward parity.”