Long EUR/CHF: Less tails, more base – Nomura

Analysts at Nomura suggest that risk/reward of being long EUR/CHF at these levels is attractive, as the market appears to have been overly focussed on these tail risks for quite some time now.

Key Quotes

“Given the hedging flow drivers, a long EUR/CHF position is another way to express a view that Italian politics will calm down, Brexit headlines will be quiet for the next few weeks, TRY will rally or at least stabilise and trade wars will not escalate too quickly into the US midterms.”

“The reasons to be short CHF are clear from a macro standpoint, with a very dovish central bank facing versus the ECB’s vigour into next year.”

“The market is now attempting to price more aggressively the pace of hikes from the ECB at the end of 2019 into 2020. Meanwhile, euro area wage data are picking up and any short-term solution to the Italian budget may provide a tailwind to EUR/CHF.”