SNB & CHF

The US dollar is trading choppily but with a distinct softer bias.  The economic news has been limited, and the apparent downing of a Russian plane by Turkey caused a flurry of activity, with Turkish assets coming under initial pressure which has abated somewhat.   The euro briefly dipped below $1.06 yesterday for new seven-month lows, but there was no follow through selling.  As is often the case with such chart points, a snap back after the violation, the euro reached $1.0670 in early...

The prevailing view in the gold community is that banks are speculators who bet on a falling price. To begin, they commit the casino faux-pas of betting on Do Not Pass at the craps table. When everyone wants the price to go up, the banks seem to want it to go down. Uncool. In contrast to this view, ours is that the banks are arbitrageurs. They aren’t betting on price, they are profiting from the small spreads in between bid and ask, spot and future, future and Exchange Traded Funds. We...

The Canadian dollar is more than a petro currency.    It is also subject to the same forces of divergence that have lifted the US dollar more broadly.  Since the beginning of the year, the US two-year yield has risen 26 bp while Canada's two-year yield has fallen almost 39 bp. This Great Graphic, created on Bloomberg shows two time series.  The yellow line is the US dollar against the Canadian dollar.  The white line is the two-year yield spread.  Earlier today the US dollar tested the...

With the vast majority of economists and primary dealers expecting the Federal Reserve to lift rates next month, the subject of discussion has shifted toward the pace of the hikes and the peak or terminal rate.   The Federal Reserve has used various word cues to help guide market expectations.  There was, for example, going to be a "considerable period" between the end of the asset purchase program and the first increase in rates.   Fed officials, even those who have argued against a...

(from my colleagues Dr. Win Thin and Ilan Solot) EM starts the week on an uncertain footing. Commodity prices were off sharply until comments by Saudi Arabia lifted them, reversing the trend in commodity-sensitive assets. The dollar is also back on the rise, pressuring EM FX even as a December FED hike is now just about fully priced in. In South America, the victory of the market-friendly candidate in Argentina and better political winds in Brazil have also given the region some hope for...

The dollar-bloc currencies and the Norwegian krone were the strongest major currencies last week but are leading the downside today.  The slump in commodity prices is taking a toll.  WTI is off by nearly 3%.  Copper is off about half as much, and gold is off about half as much as copper.   More broadly, the US dollar is firm across the board.   Large euro bids had been rumored to have been stacked near $1.06.  The euro got as near it as possible without going through (according to...

Surveys show that around 90% of primary dealers and economists expect the Fed to raise interest rates in the middle of December. Over the past month, the two-year US note yield has risen by nearly 37 bp to 91 bp.   The implied yield of the December Fed funds futures contract has risen by 4.5 bp to 21.5 bp at the close before the weekend. It is the highest yielding close in more than a month.  It fully discounts a 25 bp rate hike, IF one assumes that the effective Fed funds rate will...

The price of gold dropped six bucks, and silver seven cents. Without much price action, let’s look a few other angles to gain some perspective. First, here’s the chart of both silver and the decidedly not-monetary metal copper. The Prices of Silver and Copper in Gold There’s a good correlation, with the biggest divergence being late 2014 through early this year. For copper, not being money, to hold out at a high price before dropping looks like hope in the recovery. Or if not that, then at...

(Correction: The analysis first presented here was based on voting at the August discount rate meeting, not the September meeting.  Here is the link to the Fed statement following the August and September.   At the September meeting, eight of the 12 Federal Reserve banks advocated a hike in the discount rate.  Note that despite the advocacy of a hike in the discount rate, the Fed's record stated: "No sentiment was expressed for changing the primary credit rate before the Committee's...

1.  The continued build of short currency futures positions characterizes the changes in the speculative positioning.  All the currency futures we track saw an increase in gross short positions. This is what drove the large net short positions.  One thing this means is that late shorts are in weak hands, and as we have seen in the Australian dollar, vulnerable to a squeeze.   2.  There were five significant (10k+ contracts) gross currency adjustments in the CFTC reporting week ending...