FX quant signals are bullish for CHF: BofA

Bank of America strategists are increasingly bullish on the Swiss franc, citing strong U.S. and Asia-based investor demand, a 1.54% rise in one-month options skew, and reinforcing technical signals, all coinciding with gold's recent surge to new highs. The firm anticipates the low-beta CHF will continue to benefit from potential September risk-off sentiment and global political pressures, with GBP/CHF specifically highlighted as a preferred short play given expected sterling weakness.

Analysis

Bank of America strategists report increasingly bullish quantitative signals for the Swiss franc (CHF), which led G10 currency gains last week in tandem with gold's surge to a new all-time high. This move is substantiated by strong demand from U.S. and Asia-based investors and a 1.54% rise in the one-month options skew, the largest increase among G10 currencies. The bullish thesis is further reinforced by technical indicators, including downtrend continuation flags for EUR/CHF and GBP/CHF, and a break lower in USD/CHF against its 20-day Bollinger band. Looking ahead, the bank anticipates that September's seasonal tendency for risk-off market behavior, coupled with potential political pressures in the U.S., Japan, and the euro area, could amplify safe-haven flows into the low-beta currency. BofA specifically highlights a short GBP/CHF position as its 'FX Signal of the Week' at 1.0752, targeting fresh 2025 lows, though it cautions that a broad relief rally in the pound presents a key risk to this outlook.

Key Decisions for Investors

• Investors may consider initiating or increasing long positions in the Swiss franc against other G10 currencies, particularly the Euro and British Pound, given the strong technical and investor flow signals.
• For a more targeted expression of this view, a short GBP/CHF position could be considered, aligning with Bank of America's specific signal, while monitoring the pair's ability to remain below the mid-1.08 resistance level.
• It is crucial to manage risk by closely monitoring for signs of a broad relief rally in sterling, as this is the primary identified factor that could reverse the downtrend in GBP/CHF.
• Investors should watch for shifts in broader market risk sentiment and political developments in the U.S., Japan, and the euro area, as these are cited as key potential catalysts for haven flows into the franc.