JP Morgan argues that the current Swiss franc strength has gone of for more than expected, with EUR/CHF in particular looking overstretched to the downside considering the drop this week. The firm says that the fall is partly also due to hedge funds, real money, and systematic buyers returning to the franc but notes that the current market landscape doesn’t support for such strength in the currency.
The firm argues that with the Eurozone economy holding up and risk sentiment also taking a turn for the better now with the end of the US government shutdown, EUR/CHF should be trading higher.
Even if accounting for the reduction in US tariffs, JP Morgan points out that it is rather immaterial since it will only impact about 4% of the Swiss economy.
As such, they see the franc strength as being overdone and argues that current EUR/CHF levels are a good spot to fade and to add long positions. However, their conviction on this is just moderate amid lingering skepticism surrounding the euro area economy in general.
For some context, we have been flirting with a potential key move for EUR/CHF since last month already here. The drop back to 0.9230-40 levels today continues to underscore a threat towards the 0.9200 support level, one which JP Morgan seems to argue that will hold once again.
This article was written by Justin Low at investinglive.com.