We do not like Purchasing Power or Real Effective Exchange Rate (REER) as measurement for currencies. For us, the trade balance decides if a currency is overvalued. Only the trade balance can express productivity gains, while the REER assumes constant productivity in comparison to trade partners.
Who has read Michael Pettis, knows that a rising trade surplus may also be caused by a higher savings rate while the trade partners decided to spend more. This is partially true.
Recently Europeans started to increase their savings rate, while Americans reduced it. This has led to a rising trade and current surplus for the Europeans.
But also to a massive Swiss trade surplus with the United States, that lifted Switzerland on

EUR/CHF
The euro rose close to CHF 1.15 with the ECB meeting this week. Finally traders realized that the ECB committed not to hike rates for a very long time.
The ECB will review and take a first decision on the bond purchasing program this autumn. However, this program will come to an end only when the inflation target of 2% becomes in reach.
Strangely the EUR/CHF reacted with losses only on Friday.

Where will Euro area inflation be in December?.

FX Rates
The US dollar had one of its worst weeks of the year, as its interest rate support eroded. Despite prospects for a further upward revision in Q2 US GDP above 3.0% and continued above trend growth, the market continues to downgrade the chances of another rate

Swiss Franc
Speculators 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
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.
CHF Speculative Positions
Last data as of

EUR/CHF
Let us remember why the euro has risen from 1.08 to 1.14 between June and August:
Hopes that the French president Macron will help the French economy, similarly to the Trump reflation trade.
Hopes that the ECB will finish their bond buying program earlier combined with quite good economic data.
We are of the opinion that both points may be illusionary. The euro should not rise further.
Politicians cannot  improve the economic reality, in particular Macron. He does not do any big spending programs that could raise inflation.
And we often stated that core inflation with 1.3% is too low for any big ECB surprise.
USD/CHF
The US dollar was whipsawed ahead of the weekend. The greenback had been pulling back

The Used Goods Question
Retail sales in several countries like Germany, Japan and Switzerland continue to fall or they remain steady for years.
In the United States they have strongly risen recently. We should remind readers, that used goods sold via Ebay or similar, are not contained in this statistics. Still they create economic value for the purchases. By mentality, Swiss, Germans or Japanese pay more attention so that used goods do not lose their value so quickly. Hence used goods have higher economic value in these countries than in others.
From the press release:
Neuchâtel, 01.09.2017 (FSO) – Turnover in the retail sector fell by 0.8% in nominal terms in July 2017 compared with the previous year. Seasonally

Swiss Franc
Speculators 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
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.
CHF Speculative Positions
Last data as of

USD/CHF
The dollar had some gains versus the franc during the last month, but it lost all during the last days.
EUR/CHF
The euro is still around 1.14, this is up 2.5% against one month ago. The rising momentum for EUR/CHF, however, seems to be fading.

EUR/CHF and USD/CHF, August 26(see more posts on EUR/CHF, USD/CHF, ) Source: markets.ft.com – Click to enlarge
Swiss Franc Currency Index (3 years)
The Swiss Franc index is the trade-weighted currency performance (see the currency basket)On a three years interval, the Swiss Franc had a weak performance. The dollar index was far stronger. The dollar makes up 33% of the SNB portfolio and 25% of Swiss exports (incl. countries like China or Arab

We do not like Purchasing Power or Real Effective Exchange Rate (REER) as measurement for currencies. For us, the trade balance decides if a currency is overvalued. Only the trade balance can express productivity gains, while the REER assumes constant productivity in comparison to trade partners.
Who has read Michael Pettis, knows that a rising trade surplus may also be caused by a higher savings rate while the trade partners decided to spend more. This is partially true.
Recently Europeans started to increase their savings rate, while Americans reduced it. This has led to a rising trade and current surplus for the Europeans.
But also to a massive Swiss trade surplus with the United States, that lifted Switzerland on

Swiss Franc
Speculators 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
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.
CHF Speculative Positions
Last data as of

Overview
The euro has lost some momentum versus the franc, the main reason is as usual monetary policy:
Draghi does not want to talk about an early end of his bond buying programming at Jackson Hole.
This had been confirmed by economic data:
only 1.2% core inflation compared to a long-term inflation target of 2%.
Consequently the Swissie appreciated during the week.

Eurozone Core Consumer Price Index (CPI) YoY, Jul 2017(see more posts on Eurozone Core Consumer Price Index, ) Source: Investing.com – Click to enlarge
.

EUR/CHF
Still the euro is up 3% in the last 30 days against CHF, but this appreciation had already reached 5% (hence nearly 1.15 CHF).
 
USD/CHF and Jackson Hole

The Jackson Hole gathering is

The Producer Price Index (PPI) or officially named “Producer and Import Price Index” describes the changes in prices for producers and importers. For us it is interesting because it is used in the formula for the Real Effective Exchange Rate. When producers and importers profit on lower price changes when compared to other countries, then the Swiss Franc reduces its overvaluation. The Swiss PPI values of -6% in 2015 (see below), compared to -3% in Europe or -1% in the U.S., diminished the overvaluation. In 2017, however, producer prices are rising again – in both Europe and Switzerland. See more in Is the Swiss Franc overvalued?
Producer and Import Price Index in July 2017
From the data release of Swiss Statistics:

FX
Despite the tensions between Donald Trump and North Korea’s Kim Jong-un, the EUR/CHF only depreciated to a low of 1.1284.
Headlines Week August 14, 2017
On June 27, Draghi told the audience at the annual ECB Forum that transitory factors were holding back inflation.
This has boosted the euro against both USD and CHF.
Our opinion, however, is that this “transition” is very long, possibly comparable to the Japanese deflation/ low-inflation over decades.
At the latest from December/January 2017/2018, the EUR/CHF must go down again, See the following:

Euro / Swiss Franc FX Cross Rate, August 14(see more posts on EUR/CHF, ) Source: markets.ft.com – Click to enlarge

Why must EUR/CHF go down again?
The graph

Swiss Franc
Speculators 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
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.
CHF Speculative Positions
Last data as of

Swiss Franc vs USD and EUR
The Swiss Franc entered the second week of stronger losses. While the euro gained 4% last week, the dollar appreciated against the Swiss Franc by 2% during this week. The euro could add another percent in the last days.
The EUR/CHF reached 1.1521 after the strong US job figures. Finally, however the euro fell to 1.1451 for two reasons:
Profit taking at the end of the week and
secondly that the Swiss Franc is now stronger correlated to the dollar than it was before.
More US jobs mean more purchasing power and more demand for Swiss pharmaceutical and chemical products. The rising share of Swiss exports to the U.S.  is visible in the Swiss trade balance and got also mentioned in a recent

The Used Goods Question
Retail sales in several countries like Germany, Japan and Switzerland continue to fall or they remain steady for years.
In the United States they have strongly risen recently. We should remind readers, that used goods sold via Ebay or similar, are not contained in this statistics. Still they create economic value for the purchases. By mentality, Swiss, Germans or Japanese pay more attention so that used goods do not lose their value so quickly. Hence used goods have higher economic value in these countries than in others.
From the press release:
Neuchâtel, 02.08.2017 (FSO) – Turnover in the retail sector rose by 1.1% in nominal terms in June 2017 compared with the previous year. Seasonally

From the official news release

Interim results of the Swiss National Bank as at 30 June 2017
The Swiss National Bank (SNB) reports a profit of CHF 1.2 billion for the first half of 2017.
A valuation gain of CHF 0.3 billion was recorded on gold holdings. The profit on foreign currency positions amounted to CHF 0.1 billion and the profit on Swiss franc positions stood at CHF 0.9 billion.
The SNB’s financial result depends largely on developments in the gold, foreign exchange and capital markets. Strong fluctuations are therefore to be expected, and only provisional conclusions are possible as regards the annual result.

The increasing volatility of SNB Earnings
Annual results are not really definite. Given that the

Swiss Franc
Speculators 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
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.
CHF Speculative Positions
Last data as of

Swiss Franc vs USD and EUR
The Swiss franc was the only major foreign currency that fell against the dollar last week.
The 2.6% decline was the largest in two years. Stops triggered in the euro-franc cross, reports of direct investment-related franc sales for yen, and conviction that the SNB will lag behind the other central banks is thought to be behind the move.
The dollar high in June was near CHF0.9785, and the band of resistance extends to CHF0.9810. The euro reached its best level against the franc since the cap was lifted in mid-January 2015.

The EUR/CHF might see a similar runup as the USD/JPY in 2013, when traders anticipated the Fed tapering.

While many have set their sights on CHF1.20, but we suspect

Swiss Franc
Speculators 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
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.
CHF Speculative Positions
Last data as of

Swiss Franc vs USD and EUR
Both Swiss Franc and Euro were moving upwards against the dollar. So CHF gained 3% versus the dollar in the last month. The Euro is the strongest currency. CHF lost around 1.3% against the Euro.

EUR/CHF and USD/CHF, July 22(see more posts on EUR/CHF, USD/CHF, ) Source: markets.ft.com – Click to enlarge
Swiss Franc Currency Index (3 years)
The Swiss Franc index is the trade-weighted currency performance (see the currency basket)On a three years interval, the Swiss Franc had a weak performance. The dollar index was far stronger. The dollar makes up 33% of the SNB portfolio and 25% of Swiss exports (incl. countries like China or Arab countries that use the dollar for exchanges).

We do not like Purchasing Power or Real Effective Exchange Rate (REER) as measurement for currencies. For us, the trade balance decides if a currency is overvalued. Only the trade balance can express productivity gains, while the REER assumes constant productivity in comparison to trade partners.
Who has read Michael Pettis, knows that a rising trade surplus may also be caused by a higher savings rate while the trade partners decided to spend more. This is partially true.
Recently Europeans started to increase their savings rate, while Americans reduced it. This has led to a rising trade and current surplus for the Europeans.
But also to a massive Swiss trade surplus with the United States, that lifted Switzerland on

FX
The EUR/CHF remained over 1.10 in the last week, thanks to hawkish comments from ECB president Draghi.
Headlines Week July 17, 2017
On June 27, Draghi told the audience at the annual ECB Forum that transitory factors were holding back inflation.
This has boosted the euro against both USD and CHF.
Our opinion, however, is that this “transition” is very long, possibly comparable to the Japanese deflation/ low-inflation over decades.
At the latest from December/January 2017/2018, the EUR/CHF must go down again, See the following:

Euro/Swiss Franc FX Cross Rate, July 17(see more posts on EUR/CHF, ) Source: markets.ft.com – Click to enlarge

Why must EUR/CHF go down again?
The graph shows that the European

Swiss Franc
Speculators 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
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.
CHF Speculative Positions
Last data as of

Swiss Franc vs USD and EUR
The Euro remained the strongest among EUR, CHF and USD during the last month.
The Swiss lost against EUR 1.5%, while it gained versus the dollar 0.75%.

EUR/CHF and USD/CHF, July 15(see more posts on EUR/CHF, USD/CHF, ) Source: markets.ft.com – Click to enlarge
Swiss Franc Currency Index (3 years)
The Swiss Franc index is the trade-weighted currency performance (see the currency basket)On a three years interval, the Swiss Franc had a weak performance. The dollar index was far stronger. The dollar makes up 33% of the SNB portfolio and 25% of Swiss exports (incl. countries like China or Arab countries that use the dollar for exchanges).

Contrary to popular believe, the CHF index

The Producer Price Index (PPI) or officially named “Producer and Import Price Index” describes the changes in prices for producers and importers. For us it is interesting because it is used in the formula for the Real Effective Exchange Rate. When producers and importers profit on lower price changes when compared to other countries, then the Swiss Franc reduces its overvaluation. The Swiss PPI values of -6% in 2015 (see below), compared to -3% in Europe or -1% in the U.S., diminished the overvaluation. In 2017, however, producer prices are rising again – in both Europe and Switzerland. See more in Is the Swiss Franc overvalued?
Producer and Import Price Index in May 2017
From the data release of Swiss Statistics:

Swiss Franc
Speculators 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
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.
CHF Speculative Positions
Last data as of

Swiss Franc vs USD and EUR
The US Dollar has lost 4% against the franc since the beginning of May, while the euro is down only 1%. Most important events in this week were the ECB meeting and the UK elections. The inability of the Tory Party to secure a parliamentary majority spurred a sharp decline in sterling.

EUR/CHF and USD/CHF, June 10(see more posts on EUR/CHF, USD/CHF, )The picture shows that FX traders went long EUR against CHF. Source: markets.ft.com – Click to enlarge
Swiss Franc Currency Index (3 years)
The Swiss Franc index is the trade-weighted currency performance (see the currency basket)On a three years interval, the Swiss Franc had a weak performance. The dollar index was far stronger. The dollar

Swiss Franc
Speculators 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
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.
CHF Speculative Positions
Last data as of

Swiss Franc vs USD and EUR
While the Euro traded in the range between 1.08 and 1.09, the dollar declined by nearly 3%.

Swiss Franc Currency Index (3 years)
The Swiss Franc index is the trade-weighted currency performance (see the currency basket)On a three years interval, the Swiss Franc had a weak performance. The dollar index was far stronger. The dollar makes up 33% of the SNB portfolio and 25% of Swiss exports (incl. countries like China or Arab countries that use the dollar for exchanges).

Contrary to popular believe, the CHF index gained only 1.73% in 2015. It lost 9.52% in 2014, when the dollar (and yuan) strongly improved.

Swiss Franc Currency Index (3 years), June 03(see more posts on

The Used Goods Question
Retail sales in several countries like Germany, Japan and Switzerland continue to fall or they remain steady for years.
In the United States they have strongly risen recently. We should remind readers, that used goods sold via Ebay or similar, are not contained in this statistics. Still they create economic value for the purchases. By mentality, Swiss, Germans or Japanese pay more attention so that used goods do not lose their value so quickly. Hence used goods have higher economic value in these countries than in others.
From the press release:
Neuchâtel, 01.06.2017 (FSO) – Turnover in the retail sector fell by 1.4% in nominal terms in April 2017 compared with the previous year. Seasonally