by George Dorgan
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Headlines Week January 23, 2017 Who has read Milton Friedman knows that the Trump reflation trade is now showing its positive side. US wages are rising by 2.5%, while inflation is still relatively low. According to Friedman, inflation will increase only later. This implies that speculators are long the dollar and short the Swiss franc and the euro during the weak inflation period. The last ECB meeting showed that the ECB might be dovish for a longer period than the SNB. Consumer price inflation will decide who is more dovish. Ultimately inflation will depend on the two key parameters wages and rents. Rents will rise first in Switzerland, while the Euro zone has downwards pressures in the Southern countries. Wage pressures are weak in both. Wages are increasing more strongly only in Germany and Eastern European countries. FX week ending Jan 20 EUR/CHF is slightly above the “in-official minimum band” of 1.0680 – 1.07, hence between 1.07 and 1.0730. Euro/Swiss Franc FX Cross Rate, January 23(see more posts on EUR/CHF, ) Source: markets.ft.com - Click to enlarge SNB sight deposits An increase in SNB sight deposits means that the central bank has intervened. This week’s data: Despite the higher EUR/CHF rate, the SNB intervenes for 0.9 bn. CHF.
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George Dorgan considers the following as important: currency reserves. intervention, Featured, minimum reserves, monetary data, negative interest, newsletter, Reserves, sight deposits, SNB
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Headlines Week January 23, 2017
Who has read Milton Friedman knows that the Trump reflation trade is now showing its positive side. US wages are rising by 2.5%, while inflation is still relatively low. According to Friedman, inflation will increase only later. This implies that speculators are long the dollar and short the Swiss franc and the euro during the weak inflation period. The last ECB meeting showed that the ECB might be dovish for a longer period than the SNB. Consumer price inflation will decide who is more dovish. Ultimately inflation will depend on the two key parameters wages and rents. Rents will rise first in Switzerland, while the Euro zone has downwards pressures in the Southern countries. Wage pressures are weak in both. Wages are increasing more strongly only in Germany and Eastern European countries. FX week ending Jan 20 EUR/CHF is slightly above the “in-official minimum band” of 1.0680 – 1.07, hence between 1.07 and 1.0730. |
Euro/Swiss Franc FX Cross Rate, January 23(see more posts on EUR/CHF, ) Source: markets.ft.com - Click to enlarge |
SNB sight depositsAn increase in SNB sight deposits means that the central bank has intervened. This week’s data: Despite the higher EUR/CHF rate, the SNB intervenes for 0.9 bn. CHF. |
Change in SNB Sight Deposits(see more posts on SNB Sight Deposits, ) Source: SNB - Click to enlarge |
Speculative PositionsSpeculators were net short CHF in January 2015, shortly before the end of the peg, with 26.4K contracts. Then again in December 2015, when they expected a Fed rate hike, with 25.5K contracts.The biggest short CHF, however, happened in June 2007, when speculators were net short 80K contracts. Shortly after, the U.S. subprime crisis started. The carry trade against CHF collapsed. The reverse carry trade in form of the Long CHF started and lasted - without some interruptions - until the peg introduction in September 2011. In mid 2011, the long CHF trade became a proper carry trade - and not a reverse carry trade anymore - because investors thought that the SNB would hike rates earlier than the Fed. This week’s data: Speculators are net short CHF with 13.7K contracts against USD. This is nearly unchanged. On the other side, the USD/CHF is losing. |
Speculative Positions
source Oanda |
| Date of data (+ link to source) | avg. EUR/CHF during period | avg. EUR/USD during period | Events | Net Speculative CFTC Position CHF against USD | Delta sight deposits if >0 then SNB intervention | Total Sight Deposits | Sight Deposits @SNB from Swiss banks | “Other Sight Deposits” @SNB (other than Swiss banks) |
|---|---|---|---|---|---|---|---|---|
| 20 January | 1.0726 | 1.0663 | USD correction continues. | -13683X125K | +0.9 bn. per week | 532.3 bn. | 464.3 bn. | 68.0 bn. |
| 13 January | 1.0733 | 1.0593 | Fed meeting, USD correcting | -14246X125K | +1.7 bn. per week |
531.4 bn.
|
464.2 bn.
|
67.2 bn.
|
| 06 January | 1.0708 | 1.0499 | Good U.S. jobs report. | -13439X125K | +0.7 bn. per week |
529.7 bn.
|
467.6 bn.
|
62.1 bn.
|
| 30 December | 1.0728 | 1.0467 | -10091X125K | +0.7 bn. per week |
529.0 bn.
|
466.3 bn.
|
62.7 bn.
|
|
| 23 December | 1.0704 | 1.0421 | Again interventions at 1.07. | +7110X125K | +0.5 bn. per week |
528.3 bn.
|
463.6 bn.
|
64.7 bn. |
| 16 December | 1.0747 | 1.0533 | Slight SNB interventions at the line of defense of 1.07 EUR/CHF. | -25288X125K | +0.6 bn. per week | 527.9 bn. | 457.3 bn. | 70.6 bn. |
| 09 December | 1.0807 | 1.0683 | ECB continues QE for longer. | -25397X125K | -0.2 bn. per week | 527.3 bn. | 454.8 bn. | 72.5 bn. |
| 02 December | 1.0775 | 1.0638 | -24334X125K | -0.1 bn. per week |
527.5 bn.
|
457.6
|
69.9 bn.
|
|
| 25 November | 1.0736 | 1.0581 | CHF inflation hedge again. | N/A | +2.9 bn. per week |
527.6 bn.
|
463.0 bn.
|
64.6 bn.
|
| 18 November | 1.0711 | 1.0656 | Investors hedge against Trump’s reflation with CHF. | -22194X125K | +4.8 bn. per week |
524.7 bn.
|
458.4 bn.
|
66.3 bn.
|
For the full background of sight deposits and speculative positions see
SNB Sight Deposits and CHF Speculative Positions
Tags: currency reserves. intervention,Featured,minimum reserves,monetary data,negative interest,newsletter,Reserves,sight deposits