J.P.Morgan Issue Long EUR/CHF Call

Friday saw J.P.Morgan note that "the market had over-egged the medium-term consequences for U.S. monetary policy of the Fed's switch to FAIT and is now having to reconsider quite how passive the Fed will be during the fastest economic recovery in history overlaid with the strongest price pressures in three decades. At the same time, we believe the market has over-estimated the consequences for ECB policy of the re-opening in the region's economy. The ECB faced a chronic inflation shortfall pre-pandemic and will have to return to address this issue post-pandemic, especially with the pending conclusion to the ECB's strategic policy review which we expect to result in a shift to a symmetric 2% CPI objective. Short EUR/USD is a high-conviction, policy divergence trade in our view, and the forthcoming keynote events - the Fed at Jackson Hole on August 27-28 and the ECB at Sintra on September 28-29 - could very much underscore the parting of the ways between the Fed and the ECB to reflect the parting of the ways in their respective inflation trends since the GFC. Based on the decent improvement in NFP we are inclined to add to the short EUR/USD position and de facto do so through a long position in USD/CHF. The SNB has presided over the most anaemic (in fact non-existent) inflation trends of any country bar Japan, and will rightly have little reason to contemplate any form of tightening for a good few years yet. As such, CHF is an attractive funding currency for long USD exposure predicated on prospects for less-permissive U.S. monetary policy."

• They issued a formal recommendation to go long USD/CHF at CHF0.9243, with a stop at CHF0.9058.