Goldman Sachs: Signals In The Selloff

Goldman Sachs note that "the old adage is that "Swissy never lies," and right now it seems the Franc has a lot to say about the rates selloff. Up until Thursday's more disorderly move in the front end, CHF was marking new lows against the Euro and was the worst performing currency in the month of February - hardly signs of market distress. Instead, the message from FX markets is consistent with the brighter outlook and diminished downside risks that a number of Fed speakers have cited as the driver for the duration "tantrum." We recently recommended going long GBP/CHF because of reduced tail risks in Europe and (UK outperformance), and we think this can continue; we now target CHF1.33 and raise the stop to our initial entry point of CHF1.24. Commensurate with this, we are raising our EUR/CHF forecasts to CHF1.13, 1.17 and CHF1.20 in 3, 6 and 12 months. As this week's price action demonstrates, the key risk to our view is if the market begins to price a hawkish policy shock instead, but we think valuation constraints make this unlikely, and the SNB demonstrated a commitment to absorbing exchange rate shocks with over CHF100bn of intervention in 2020."