CAD / CHF 1Q Forecast: Long CAD / CHF – A combination of risk trends and positioning
2020 was a year like no other and burnt in Memory. Fortunately, with the rollout of several vaccines and with global monetary and fiscal stimulus, 2021 looks like a better year. As the vaccination process is underway, negative tail risks are expected to recede, while lockdown measures will also continue to be relaxed, allowing for a better economic outlook. A lot as 2020, with global interest rates at the zero limit, “RORO” (Risk On Risk Off) should remain a key driver for FX. As such, my job of the year is to position myself in this way with a bullish outlook on the CAD./CHF.
As global economic outlook improves with pent-up demand growth, the risks are on the upside for oil prices, which in turn is likely to keep the Canadian dollar afloat, especially against the likes of the Swiss franc.
FX G10 correlation with oil prices
Positioning: Looking at the institutional position, speculators continue to maintain a significant short position in the Canadian dollar, while net buyers of the Swiss franc are trading at extremes. As such, CAD / CHFthe rise could well be exacerbated by a relaxation of the short CAD / CHF positioning.
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