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Bank of America recommends short CHF/JPY position




By Samuel Indyk

Investing.com – In a recent research note, analysts at Bank of America Merrill Lynch Global Research recommend selling with a target of 114.00 and a stop loss at 120.00.  

Rationale

BofA Global Research argues that the CHF could benefit from risk-on in Europe as the Covid vaccination programme accelerates in the second quarter after a slow start. They also think negative JPY flows may ease this quarter.

“CHF/JPY is overvalued based on our equilibrium estimates and is currently at historically high levels,” the bank said

Bearish divergences and resistance favour decline

CHF/JPY has failed to confidently breach resistance in the 118s which BofA points out is where every rally since 2017 has failed.

“Oscillators like RSI and MACD cast doubt on the rally because they have made lower highs while spot has made higher highs (bearish divergence),” analysts said.

They argue that short term momentum signals suggest the two-week rally is stretched.

Trade risks

M&A flows in Japan have been highlighted as a risk to the trade as well as a failure for the vaccination effort to accelerate fast enough in Europe. Yesterday’s news that Johnson & Johnson (NYSE:) has suspended the rollout of vaccines in Europe could see this risk play out sooner rather than later.

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