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5 Feb 2013
Forex Flash: Buy EUR/CHF – Nomura
Nomura Strategist Geoffrey Kendrick believes that the time is right to go long EUR/CHF.
He begins by noting that he is more constructive on EUR/CHF in 2013 and is expecting the pair to spend some time trading well away from the floor, pushing up to 1.30 b y mid year.
From a CHF flow perspective, his view is that the reduction in Eurozone risk premia to date should be sufficient to see some of the safe haven deposits removed from CHF-based accounts. In terms of the numbers, Kendrick estimates that between 2008 and August 2012 (pre-Draghi OMT announcement) CHF-based deposits of non-Swiss residents increased by CHF114bn. And with the eurozone risk premium roughly halved, a removal of CHF57bn of these deposits seems reasonable. He believes that this would be sufficient to offset six months of the Swiss current account surplus (hence the mid-year target), and the move in our EUR/CHF fair value model (primarily because of reduced risk premia) is consistent with a move in EUR/CHF to the 1.26-1.30 range.
In terms of entry level and timing, Kendrick notes that price action earlier this week has shown that risk premium effects cannot be entirely dismissed in relation to Euro crosses. That said, he does not expect Euro risk premium effects to be as dominant as in 2010-12 in 2013. Infact, risk premium compression seems to have been lagging in EUR/CHF relative to other Euro crosses and other Eurozone assets, and could materialise more forcefully in coming months. He feels that this lagged effect is likely caused by the conservative nature of the deposit flows that he is targeting.
He sets his stall out by looking to go long at 1.2290, with a stop at 1.1990, with a first target at 1.2600 and then 1.3000. he is looking to add to the position at 1.2200 should spot dip lower.
He begins by noting that he is more constructive on EUR/CHF in 2013 and is expecting the pair to spend some time trading well away from the floor, pushing up to 1.30 b y mid year.
From a CHF flow perspective, his view is that the reduction in Eurozone risk premia to date should be sufficient to see some of the safe haven deposits removed from CHF-based accounts. In terms of the numbers, Kendrick estimates that between 2008 and August 2012 (pre-Draghi OMT announcement) CHF-based deposits of non-Swiss residents increased by CHF114bn. And with the eurozone risk premium roughly halved, a removal of CHF57bn of these deposits seems reasonable. He believes that this would be sufficient to offset six months of the Swiss current account surplus (hence the mid-year target), and the move in our EUR/CHF fair value model (primarily because of reduced risk premia) is consistent with a move in EUR/CHF to the 1.26-1.30 range.
In terms of entry level and timing, Kendrick notes that price action earlier this week has shown that risk premium effects cannot be entirely dismissed in relation to Euro crosses. That said, he does not expect Euro risk premium effects to be as dominant as in 2010-12 in 2013. Infact, risk premium compression seems to have been lagging in EUR/CHF relative to other Euro crosses and other Eurozone assets, and could materialise more forcefully in coming months. He feels that this lagged effect is likely caused by the conservative nature of the deposit flows that he is targeting.
He sets his stall out by looking to go long at 1.2290, with a stop at 1.1990, with a first target at 1.2600 and then 1.3000. he is looking to add to the position at 1.2200 should spot dip lower.