Perennial bear
[17/12/25]
No call to action yet - will update below. Putting my thoughts on CHF out there, as I have been bearish for some time now, with the currency largely rangebound since starting this venture four months ago (EURCHF 0.9200-0.9450 for the most-part), but have not managed to make money in the phases of CHF weakness. Hoping it helps someone form a view.
Fully aware and sympathetic to the concept of CHF being ‘FX gold’. Geopolitical neutrality since the dawn of time and structurally low inflation are a potent combo. The phrase “victim of it’s own success” comes to mind when considering that through decades of policy stability and asset-steadiness (we don’t need to mention the morning of Jan 15, 2015), the attractiveness of the CHF despite any relative yield whatsoever has resulted in its strength undermining the competitiveness of Swiss exports. It is an open economy, after all, with pharmaceuticals and luxury goods making up a large component of its export basket. All said; at some point, the strength in the CHF is either a problem for the central bank or the corporate sector. CHF strength is great for those working in Switzerland and living/spending in neighbouring countries, yet this is increasingly an issue for the primary income balance of the country.
In the FX world, the CHF is used to fund carry/EM expressions at times, but when the toolkit for funders has included the JPY, EUR and CNH (in order of preference) in recent years, that CHF pressure has not sustained to the same degree.
The SNB have two weapons to placate or combat said strength and they are refreshingly open about it. They can A) lower interest rates and use forward guidance to suppress the curve, or B) intervene directly in the FX market to counter episodic strength in the franc. My view is that A) is harder when you’re at 0% and negative rates have a strong psychological economic impact, and harder still when your G10/DM peers are ending their own cutting cycles (see recent front-end pricing step function). It is agreeable that if the SNB start cutting, they can go aggressively negative, but we are not there now. The SNB report their (B) activity, but it is lagged nuanced, as well as difficult to reverse engineer their sight deposit data. It has been happening this year but in a far more passive style than previously. The read-through of this activity is that for now the SNB prefer EURCHF above 0.92 than below, but are not actively pressuring the franc; instead absorbing stressed buying of the CCY during episodes of global equity correction.
In the very short-term, EURCHF correlates positively with Russia-Ukraine news-flow. The bar was arguably high for a surprise out of the SNB last week, but they failed to clear it and the CCY responded positively. Dips to a 0.92 handle in EURCHF have been elusive, but I am growing more confident that the usual month/year end CHF strength can this year create a structural entry opportunity, in limited loss format, to take advantage of the tailwinds of Q1.
Medium-term bullish EURCHF thesis:
EZ fiscal-spend harvest underway. Hard data to pick-up as we approach the 1Y anniversary of the spend. Global equity projections higher into H1.
Russia-Ukraine ceasefire would see a CHF haven premium removed, as well as EZ restructuring benefit.
Vol-selling structures compress prices; when the range breaks (0.9200-9450) you have the SNB on one side and runaway potential on the other as market-makers struggle for liquidity.
Carry (ZAR, latam) popular with carry:vol ratios high and 2026 TOTY features rife. JPY funder status cemented post Takaichi but JPY shorts extended and BOJ hurdle through Dec-Jan to clear.
You benefit from a c.2% carry buffer being long EURCHF - ideally embedded into the FXO price as opposed to a naked cash long.