EUROZONE ISSUANCE: EGB Supply: W/C 21 July

• Analysts on balance appear to see modest CHF strength as the relatively most likely outcome for FX markets for tomorrow's SNB meeting - but views are not unanimous:
• * Barclays: "Modest hawkish risks into the meeting, with the market having likely flipped short the franc in recent weeks."
• * Goldman Sachs: "We expect global drivers to be more important for the direction of CHF in the near term than domestic policy and think CHF should remain supported even in a backdrop of negative rates."
• * JP Morgan: "While CHF has usually weakened on days of dovish surprises in this cycle, there was only continued follow-through in the days and months after in two out of five instances (Jun, Dec’24). We do not think an ultimate landing zone in negative territory would be much of a headwind to franc strength if global/regional growth forces are in its favour."
• * Nomura: "We have been recommending long EUR/CHF, targeting 0.9650, since mid-May, because of the view that the SNB is more likely than not to deliver policy actions to alleviate Swiss deflationary risks and CHF appreciation."
• * UniCredit: "CHF is likely to weaken across the board, although a scenario of negative interest rates in Switzerland is already priced into forward rates."

Wednesday's Europe rates/bond options flow included:

• RXN5 131c vs RXQ5 132c spread, sold the Aug at 32 in 3.1k
• RXQ5 130/128.5ps, bought for 44 in 3.1k
• ERX5 98.5625/98.625cs, bought for half in 34.8k
• ERH6 98.5625/98.1875ps 1x2 sold at 10.75 down to 10.5 in 20k
• ERH6 98.0625/98.1875/98.50/98.625c condor vs 97.875p, bought the condor for half in 2.5k

• Latest dollar weakness has had little impact on USDCHF today. Modest gains have extended the pair’s bounce from the 0.8056 lows seen last Friday, printed in reaction to the initial bout of headlines surrounding the escalation of conflict in the middle east. The pair has risen 1.5% since, edging closer to 0.82 as we approach both the Fed and SNB decisions ahead.
• With OIS markets implying around a 25% chance of an outsized 50bp move into negative rates territory at the time of writing, an in-line 25bp cut to 0.0% might prompt some moderate CHF strength. The break-even on an overnight straddle sits at +/- 65 pips, suggesting markets see little risk of a swift move back to the key multi-decade support at 0.8040.
• However, a hawkish Fed, dovish surprise from the SNB or an increase in geopolitical concern might prompt a more protracted recovery for USDCHF. This could threaten a daily close above the 20-day EMA, which currently intersects just above the 0.82 handle, of which spot has not closed above since May 19. Above here, there are a cluster of highs around the 0.8250 mark, before the 50-day EMA is at 0.8310, a key resistance. A clear break of this average is required to signal a potential reversal.
• EURCHF is trading in a broad range defined by resistance at 0.9447, the Apr 25 high, and support at 0.9250, the May 23 low. Both levels represent important short-term directional triggers.