EUR/CHF: Higher EZ yields to help reverse downward pressure – MUFG

Analysts at MUFG Bank point out that higher yields across the Eurozone will help reverse the downward pressure on EUR/CHF. They see have a trade idea of a long position with a target at 1.0850, an entry-level 1.0550, and a stop loss at 1.0300. 

Key Quotes:

“We are recommending a long EUR/CHF trade idea. The trade idea is to take advantage of the hawkish repricing of ECB rate hike expectations. The ECB’s hawkish policy shift is an important bullish pivot point for the EUR. We do not expect the SNB to quickly follow the ECB by speeding up their own tightening plans. The ECB policy shift has already helped EUR/CHF to rebound further above last month’s low of 1.0300. Nevertheless, we still believe there is scope for EUR/CHF to keep moving higher in the near-term.”

“EUR/CHF is still trading well below levels from just over a year ago when it was trading above the 1.1000- level. The recent sharp move higher in euro-zone yields is not yet fully reflected in a higher EUR/CHF rate.”

“We remain optimistic as well that a diplomatic solution will be found for the stand-off between the Ukraine and Russia. The main risks to our bullish view are: i) higher yields trigger a bigger correction lower for risk assets and boost safe have demand for the CHF, and ii) Russia invades the Ukraine triggering a sharp move higher for the CHF as it would be viewed as a negative shock for European economies.”