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In FX markets, lower volatility in rate markets, especially European rates markets, could encourage carry trade type positions among European G10 FX, according to analysts at Nomura.

Key Quotes

“The central banks of low yielding currencies (like CHF and SEK) are more sensitive to the ECB’s policy stance, in our view. As a result, the SNB and Riksbank’s policy stance will stay dovish, which would maintain the low yielder status of CHF and SEK, and they can remain attractive funding currencies.”  

“After the SNB abolished the EUR/CHF floor in January 2015, EUR/CHF has tended to perform strongly when the volatility of Bund declines, while it tends to depreciate when volatility spikes.”

“European political uncertainty remains relatively high, and tensions between the EU and Italian government can rise again into 15 October when the Italian government submits its budget. However, over the summer, the low volatility environment created by major central banks can support EUR/CHF. Downside risks of the pair below 1.15 are also limited, in our view, as the SNB has maintained its stance to intervene in the market when necessary.”