EGB SYNDICATION: Expected Upcoming Transactions (2/2)

• In the equity space, the trend condition in S&P E-Minis remains bullish and the contract is holding on to the bulk of its recent gains. Resistance at 6128.75, the Jun 11 high, has recently been breached. The break confirmed a resumption of the uptrend that started Apr 7. This was followed by a breach of key resistance and a bull trigger at 6277.50, the Feb 21 high. Sights are on 6356.12, a 1.236 projection of the May 23 - Jun 11 - 23 price swing. Key support is at the 50-day EMA, at 6021.70.
• EUROSTOXX 50 futures are trading higher today as the contract extends the recovery that started Jun 23. This strengthens a bullish condition and exposes key resistance and the bull trigger at 5486.00, the May 20 high. Clearance of this level would confirm a resumption of the medium-term bull cycle that began Apr 7. A break would open the 5500 handle. On the downside key support has been defined at 5194.00, the Jun 23 low.

OI data points to a mix of net short setting and long cover during Tuesday’s downtick in futures, with the most meaningful net positioning swings coming via net short setting in TU futures and net long cover in FV futures.

• Another pop higher for CHFJPY overnight has seen the cross extend its impressive recent surge to fresh record highs of 184.57, expanding the rally from the June lows to ~6%. With both USDJPY and USDCHF around 1% off their most recent highs and lows respectively, there appears room for a short-term continuation of this trend, potentially placing the cross at levels around the 188.00 mark.
• When assessing the drivers of CHF strength, Bank of America believe part of the answer lies in the CHF options market: “We look at USD/CHF 1yr implied volatility versus the average of G10/USD 1yr implied. Overlaying with CHF/USD. USD/CHF vol premium is now the highest since 2017. Whilst still trading at a discount, this is highly unusual and we believe the anchor to this move is US fiscal dominance - and the rise of term premium in both the US and Japan.”
• If, as they think, fiscal concerns will be a more pervasive part of market thinking, it is difficult for the SNB to use traditional policy levers to wrestle control from markets, vindicating BofA’s ongoing suggestion that the SNB should "think outside the box" for solutions to the "problem" of CHF strength.
• In their view, the SNB could either abandon the inflation target (unlikely) or adopt an FX framework which places much greater emphasis on FX management rather than rate setting. In effect, we argue that rate setting becomes an endogenous variable and adjusts to achieve the SNB's FX objectives. Only then do BofA think there is a realistic chance of meaningful CHF correction.