We have gone long EUR/CHF today at 1.0530, targeting a retracement back to the 1.0800 region. The pair has been drifting lower in recent weeks, largely as a result of dovish comments from ECB members pushing back on any potential rate hikes. Add into the mix an unusually strong CHF given the circumstances, and the pair trades down to levels not seen since May 2020.
The 1.0500-1.0550 region is where the SNB actively intervened back in 2020, and we feel that this is a natural level for a rebound. A clean break below this area would cause us to rethink out trade.
From a fundamental view, we think that CHF weakness should resume given the tightening of G10 monetary policy (e.g from the Bank of England next month). It’s use as a funding currency should outweigh that of the EUR in our opinion.