Shrinking basket of FX safe havens – TDS

Mazen Issa, Senior FX Strategist at TDS, suggests that the Brexit aftermath has introduced a renewed cloud of uncertainty over the global outlook.

Key Quotes

“Risky assets have bounced since the immediate post-vote reaction, but we think this will prove temporary. Such an environment should be positive for safe haven currencies such as the USD, JPY and CHF.

Relatively speaking, we do not think this will be particularly beneficial to the CHF. The SNB has already demonstrated its ability and willingness to intervene in FX markets during this episode. Importantly, it is too early to gauge the extent of contagion the Brexit shock will entail. This leaves the Swiss economy vulnerable.

Portfolio inflows into Swiss assets have eased and negative rates across the curve reduce the CHF’s allure. This implies a shrinking basket of safe havens and should pressure USDJPY lower. This may also compel a portfolio shift towards dollar bloc currencies that offer more attractive carry. We see opportunities to short cross/JPY pairs including CHFJPY but also to be outright long USDCHF on dips, particularly toward support around 0.95.”