Swiss Franc Falls for Fourth Day as Japanese Banks Trigger Sales

(Bloomberg) -- The Swiss franc extended an overnight decline against the euro, on bets that a tapering announcement by the European Central Bank later this year will spur more selling of the haven currency.

The euro jumped as much as 0.8 percent against the franc, as purchases of the common currency by Japanese banks for their daily requirements triggered buy-stops, according to two traders who asked not to be identified because they aren’t authorized to speak publicly. The currency pair had advanced for four straight days, touching the highest level since 2015, after Swiss National Bank President Thomas Jordan said earlier in the week the franc is “significantly overvalued.”

“With ECB normalization, the expensiveness of CHF is no longer justified, ” said Rodrigo Catril, a currency strategist at National Australia Bank Ltd. in Sydney. “Overnight, the move gathered momentum and we suspect stops have been triggered in Asia today. We think EUR/CHF has room to trade toward 1.15.”

The dollar slipped ahead of the release of U.S. second-quarter economic growth data. The main driver against the greenback is the strength of the euro, given continued expectations the ECB will seek to normalize its monetary policies, said Daisuke Karakama, chief market economist at Mizuho Bank Ltd.

• EUR/CHF gains 0.5% to 1.13375; touched 1.13634, highest since January 2015
  • Very poor liquidity in spot extended the move; EUR/CHF taking a while to fill the gap due to an absence of natural sellers: traders
  • The move above overnight high was due to a combination of short covering and momentum buying: traders
  • “Stop losses on USD/CHF and EUR/CHF triggered the move,” says Yuji Saito, executive director at Credit Agricole CIB’s forex department in Tokyo. “One remote reason for recent franc selling appears to be based on speculation about Swiss funds changing allocations as the central bank is keeping an easing stance.”
• USD/JPY falls 0.1% to 111.12, after dipping to a low of 110.93; 10-year Treasury yield is little changed at 2.30%
  • “Various factors are weighing on the dollar, including a sluggish rise in wages, inflation, and doubts whether the Fed can simultaneously raise rates and reduce its balance sheet,’’ says Karakama. 
  • Biggest play now is selling the dollar against the euro, though markets may soon turn to another currency, which will likely be the yen. Yen has been the most oversold over the past five years in terms of real-effective rate while the dollar has been the most overbought, he says
• EUR/JPY down 0.1% to 129.82
  • Currency pair was sold by Tokyo-based banks to clear flow from macro accounts, according to an Asia-based FX trader
  • Momentum sell orders under 129.50 and option-related bids ahead of 129.00 strikes

--With assistance from Netty Ismail

To contact the reporters on this story: Chikako Mogi in Tokyo at cmogi@bloomberg.net, Michael G. Wilson in Sydney at mwilson176@bloomberg.net.

To contact the editors responsible for this story: Tan Hwee Ann at hatan@bloomberg.net, Patricia Lui