Dust Settles After SNB Surprise But Watch For Aftershocks - BNPP

The SNB’s surprise decision to remove its 1.20 floor in EUR/CHF has resulted in a significant shift higher in implied vols across the G10 and massive strengthening in the CHF, and as the dust settles in the aftermath of the announcement, the collateral damage appears relative small so far, notes BNP Paribas.

"Although the CHF is a low-yielding funding currency which sits in the short side of many carry-based portfolios, higher yielding commodity-bloc and EM currencies (other than the HUF and PLN) have not been hurt and some have actually gained ground. It may be that overall market positioning in these currencies has been sufficiently short due to the recent collapse in commodity prices," BNPP adds.

"Still, we would watch price action over the next two days for signs of exit from carry strategies, with EUR-funded and JPY-funded positions as a consequence at some risk," BNPP warns.

"We expect continued volatility in EURCHF as the market tries to find a new equilibrium. We lowered our EURCHF 3-month forecast to 1.02 and our year-end target to 1.08 following the SNB’s move," BNPP projects.