Synopsis:

Bank of America (BofA) explores why the Swiss Franc (CHF) has not weakened as expected despite widespread consensus favoring short positions. The analysis highlights that geopolitical and risk-off factors have supported CHF, and advises on positioning strategies ahead of the Swiss National Bank (SNB) policy decision.

Key Points:

1. Unexpected CHF Resilience:

   • Historical Context: CHF was anticipated to weaken due to historical low inflation, a central bank committed to preventing significant appreciation, and a traditionally defensive asset market.
   • Yearly Performance: Despite expectations, CHF has shown significant weakness in the first half of the year and a recovery in the second half.

2. Factors Supporting CHF:

   • Risk-Off Appeal: Geopolitical tensions and regime changes have bolstered CHF's appeal as a safe-haven currency.
   • Quantitative Signals: Current quant signals indicate that carry considerations are a major factor affecting CHF.

3. Trade Recommendation:

   • Short-Term Outlook: The trend suggests potential for CHF appreciation in the near term.
   • Strategic Positioning: BofA thinks we are entering CHF selling zone ahead of the September SNB policy decision.

Conclusion:

CHF's unexpected strength this year reflects its continued role as a risk-off asset amid geopolitical uncertainties. While short CHF positions have been popular, BofA's analysis suggests a potential upside in the near term, with an optimal selling opportunity approaching the September SNB policy decision.