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Jan 26 - 10:55 AM

BofA: Quant is Bullish USD/CHF Into the Coming Week; Risk is A Dovish Jan FOMC

By eFXdata  —  Jan 26 - 09:37 AM

Synopsis:

Bank of America (BofA) presents its latest quantitative analysis on currency markets, focusing on the USD/CHF pair. The bank shares insights on why it holds a bullish stance on this currency pair for the upcoming week.

Key Insights:

  1. Bullish USD Signals:

    • BofA's short-term quantitative signals indicate a bullish outlook for the USD. They recommend trading this outlook through the USD/CHF pair.
  2. Increased Demand for CHF Puts:

    • There's a noticeable increase in the market for CHF puts against both USD and EUR. This trend suggests a growing market sentiment anticipating a decline in the value of the CHF relative to these currencies.
  3. Bearish on CHF Based on Rates Factor:

    • BofA's Cross-Asset Regime Switching (CARS) model shows a bearish perspective on CHF, particularly based on the rates factor. This bearishness is also influenced by the USD Index (DXY) testing its 200-day Simple Moving Average (SMA) resistance.
  4. Preference for USD/CHF Pair:

    • BofA prefers the USD/CHF pair for expressing a bullish USD view in the near term. This preference is based on the current market dynamics and option flow data.
  5. Bearish CHF as a Consensus View:

    • The consensus view for 2024 is bearish on CHF. However, BofA believes this has not been fully reflected in market positioning and price actions yet.
  6. Risks to the Bullish View:

    • A key risk to this bullish stance on USD/CHF is a dovish outcome from the upcoming FOMC meeting, which could lead to a broad-based sell-off of the USD.

Conclusion:

BofA's analysis suggests a bullish outlook for USD/CHF in the short term, influenced by market trends and option flows. While the consensus for 2024 is bearish on CHF, it's yet to fully impact market positions and prices. Investors should be mindful of potential shifts in market sentiment, particularly related to the Federal Reserve's upcoming decisions, which could alter this outlook.

Source:
BofA Global Research

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