CHF SNB Not Changing Yet
Watch: Sight Deposits, SNB Rates Decision
We maintain our bias for CHF. The SNB rates decision is the main risk event in the coming week, where we do not expect them to change their accommodative stance given uncertainty over the impending vote on the sovereign money initiative in June, still below 1%, and the growth recovery just starting. This should drive Swiss investment abroad in search for yield, especially as Eurozone breakup risks remain low. Based on the sight deposits data, the SNB has returned to intervene in the FX markets when EURCHF was hovering around the 1.15 level, limiting the upside for CHF.
JPY in Risk Rebound Neutral
Watch: BoJ Rates Decision, Labor Cash , PPI, Weekly Security Flows, IP
In the short term, we think there is scope for USDJPY to rebound to 108 as risk appetite rebounds with the US 10y real yield coming down from its recent high of 82bp. Despite recent protectionist rhetoric, we think China wants to maintain strong global growth to support internal rebalancing and the lower USDCNY lends support to this view. As trade tensions ease, global fundamentals remain in place, and perform well, we see JPY under temporary selling pressure. In the long term, we remain on JPY as we expect risk appetite to soften in 2H18.
Credit to Morgan Stanley Research