EUR/CHF: A Pause Before Resuming Upside Move
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Rates spreads suggest a higher EUR/CHF at this point, expect the move up to continue, with Brexit as key short term risk. EUR/CHF has moved above 1.10 and aimed for 1.12 during last month. After a short pause we expect the upside to continue.
Rates suggest EUR/CHF will move higher Unlike last May, we haven’t seen the sharp rise in Bund yields, but with core inflation and credit firming in the euro zone and the markets pricing ECB easing, there is still hope for a rise in the near future. In addition to the direction of global rates, spreads matter too. CHF deposit rates are now currently 40-60bp below the EUR deposit rates. Thus even if the ECB cuts rates as the market prices in (some 6bp priced in for the year ahead), the CHF will have a lesser interest rate advantage. The recent development in sovereign bond rate spreads suggests the EUR/CHF higher, if history holds.
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