Long-term CHF shorts vs. NOK or SEK preferred into Swiss economic uncertainty – SG

FXStreet (Barcelona) - According to Kit Juckes of Societe Generale, SNB’s action to tighten rules on imposing negative rates to entities suggests that the central bank’s plan to impose negative rates isn’t helping to weaken the CHF, and further suggests remaining short on CHF versus NOK and SEK over the long-term.

Key Quotes

“The SNB cracked down on avoidance of negative rates yesterday, tightening the rules so that very few entities are now exempt. This isn’t a great surprise but it does highlight the fact that the move to negative rates isn’t causing an immediate flight of money out of Switzerland that can weaken the currency.”

“In the end, negative rates (and even more negative ones if necessary) will chase money out of the Swiss franc, but it is clear that this is far harder to achieve than is the case in the EA where the ECB's move to negative rates has succeeded beyond their wildest dreams. If SNB reserve growth is merely the offset to that failed plumbing, more than just negative rates will be needed.”

“Meanwhile, we don’t really know yet how much the economy has been impacted, though economists are downgrading forecasts to look for a mild recession even as the EA recovers. We still like short CHF positions versus either NOK or SEK, but these are long-term, slow-burn trades.”