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Considering January 15th insane move on the Franc, you would probably think twice before ever shorting the Swiss currency again. It seems however that investors start to look beyond that event and realize how overvalued the Franc is. With CHF bonds staying largely negative, the franc holdings have little to offer apart from safe haven. And even the latter is questionable in view of the deteriorating Swiss economy (low growth, deflation). During last week’s highly volatile markets, investors were unusually reluctant to buy the Franc, preferring the Euro or the Yen. In fact, the EUR/CHF failed to go below 1.08, visibly without the help of the SNB as last week’s sight deposits came out fairly unchanged.
The USD/CHF, usually positively correlated to equity markets, seems less and less so over the past months, as the below Chart asserts (except in extreme shocks i.e. August 24th black Monday).
Both currencies the Euro and the US dollar should outperform the Swiss franc over the coming months. The EURCHF will perform best in a risk-off environment, due to the Euro’s inverse relation to equities; while the USDCHF will perform better if risk appetite returns to the market.
Note that the daily correlation of both currency pairs, EURCHF and USDCHF, has decreased drastically and now stands at 0.10 compared to 0.90 three months ago. Hence, owning both would have a positive diversification effect.
USDCHF support 0.9665, 0.9520 resistance 0.9820, 0.9900
EURCHF support 1.0875, 1.0820 resistance 1.0980, 1.1050