Goldman: Get Real, This Way Too

Late on Friday Goldman Sachs wrote “we still think markets are somewhat discounting the importance of the inflation differential for the CHF. We think the SNB would like to keep the real exchange rate roughly stable, if not appreciating somewhat, to help keep a lid on inflation pressures.”

• “We think the market forwards should better reflect this reality, and clear SNB policy goal, but that is not really the case. Therefore, we recommend selling 25 Delta 3-month EUR/CHF calls.”
• “Recent EUR strength provides an attractive entry point and signs of more persistent inflation should mean that EUR/CHF ‘fair value’ should continue to trend lower.”
• “We expect the SNB will once again make it clear that it will guard against FX depreciation, and we see some chance of a 50bp hike to reinforce this message, but in practice the threat of continued intervention should be a sufficiently powerful tool.”
• “We think selling calls (either ATM or 25D) should be a profitable strategy as long as policymakers are guarding against inflation that is too high.”
• “Right now, the strategy would be profitable if EUR/CHF stays below about CHF0.99 vs spot CHF0.98 and our 3-month forecast of CHF0.95.”