Goldman Sachs and Bank of America strategists are bullish on the Swiss franc, believing that its support against the Japanese yen is strong as the rise in political uncertainty has weakened the yen’s appeal as a safe-haven asset.
Shusuke Yamada, chief Japan foreign exchange and interest rate strategist at Bank of America, wrote in a report on Monday: “Given the sound fiscal position of the Swiss franc and the rising risk premium against traditional safe-haven currencies such as the US dollar and the Japanese yen, going long on the Swiss franc/yen pair might be the trade that best reflects the fiscal risk of the yen.” The bank recommended going long on the Swiss franc against the Japanese yen, with a target price of 189.
Goldman Sachs strategist Michael Cahill and others also expressed the same view. He said, “The new political uncertainty in Japan should support the Swiss franc and to a lesser extent the euro,” as both currencies will benefit from concerns over US economic growth and the Federal Reserve’s consecutive interest rate cuts.
The yen has been the worst-performing currency among the Group of 10 (G-10) over the past three months, and it has come under additional pressure following the resignation of Prime Minister Fumio Kishida. Kishida’s departure has opened the door for a successor who is more inclined towards loose fiscal policies. The divergence in central bank policy paths has also supported the yen, which hit a record high this week. The Bank of Japan’s policy normalization process has been clouded by political uncertainty, while the Swiss National Bank seems to have hit the lower bound of interest rates amid a rebound in inflation.
In recent years, the Swiss franc has gained favor among some investors, thanks to Switzerland’s strong macroeconomic fundamentals. Japan’s real yield is negative, while Switzerland’s is slightly positive, presenting a sharp contrast. Despite Japan’s large current account, its surplus mainly comes from investment income, which is usually reinvested overseas. In contrast, Japan’s trade balance has been in deficit since 2011, while Switzerland’s trade surplus has been expanding.
Official capital flows also reflect the shift from the yen to the Swiss franc. Bloomberg’s analysis of International Monetary Fund (IMF) data shows that global foreign exchange reserve managers have increased their allocation to the Swiss franc. As of March 31, the Swiss franc’s share in global reserves rose to 0.76%, the highest level since 1992. Although the Swiss franc’s share is still far lower than the yen’s 5.15%, this trend indicates that the Swiss franc is becoming more attractive in reserve portfolios.
Technical analysis:
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Gold: Yesterday, we arranged for a buy-in after a pullback in the blue zone following a breakout. However, the price moved in a one-sided trend after the breakout without any pullback signs. Today, we will continue to maintain an aggressive long position strategy. If there is a new high or a new long signal after a liquidity sweep around 3620/30, we should attempt 1-2 times. For detailed positions, please consult the plugin.
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Nasdaq: Yesterday, our plugin clearly reminded to place a buy limit order in the blue area after breaking through 23815. Currently, after the price has precisely retraced, a 1:1 profit and loss ratio has been achieved. For today, we suggest reducing the position of the long orders placed yesterday for protection. If it continues to break upward subsequently, maintain the operation of buying on retracement. For detailed positions, please consult the plugin.
(NASDAQ 15-minute chart)
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Crude oil: Yesterday, the blue buy stop operation in the plugin was perfectly executed with a 2:1 profit-to-loss ratio. The green buy limit had some minor fluctuations, but it also completed a clear rebound trend afterwards. For today’s trading, we suggest focusing on the 63 level as the key point for choosing the direction of operation. For detailed positions, please consult the plugin.
(Crude Oil 15-Minute Chart)
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Today’s key economic data and events to focus on:
18:00 US August NFIB Small Business Confidence Index
