Global Central Banks, specifically the FOMC and ECB, are racing to offset an avalanche of slower economic growth ahead via rate cuts and dovish lingo – what currency arbitrage might benefit the best? We ultimately believe that the U.S. Federal Reserve wins out in the end with a weakening USD and perhaps an aggressively weakening USD at that. With the benchmark U.S. 10-yr note yielding a historically paltry 2.05%, it’s still one of the highest yielding government bonds globally. Comparatively speaking, the German 10-yr bund yields -0.32%, France -0.068, Japan -0.133% (I could go on), which means on a rate of change basis, the Fed has the most room to pull down US interest rates aka lower borrowing costs which ultimately leads to a devaluing of the U.S. Dollar. One currency we believe will ultimately win by default due to a dovish U.S. Fed and dovish ECB, is the Swiss franc. Without the peg to the euro, we believe the Swiss will be a top currency for flight to safety measures with declining global bond yields. Our quantitative signal in the CHF/USD went bullish trend at the beginning of June, and is likely to continue thru year end and into 2020.
Swiss Franc Sep ’19 Daily Chart