by George Dorgan
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Headlines Week December 09, 2016 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. Last week’s 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: ECB continues QE for longer than expected. The Euro fell to USD 1.0550 and CHF 1.0730. Euro/Swiss Franc FX Cross Rate, December 12(see more posts on EUR/CHF, ) Source: markets.ft.com - Click to enlarge Speculative Positions 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.
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George Dorgan considers the following as important: Bank-Recapitalization, currency reserves. intervention, minimum reserves, monetary data, negative interest, newslettersent, Reserves, sight deposits, SNB
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Headlines Week December 09, 2016
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. Last week’s 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: ECB continues QE for longer than expected. The Euro fell to USD 1.0550 and CHF 1.0730. |
Euro/Swiss Franc FX Cross Rate, December 12(see more posts on EUR/CHF, ) Source: markets.ft.com - 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. Speculators appeared mostly interested in reducing exposure in the run-up to the US jobs data and the Italian referendum. They liquidated gross longs in the currency futures market and covered shorts. Of the eight currencies we track there were two exceptions, the Japanese yen and the Swiss franc. Net Swiss franc shorts against USD rose to 25.4 K contracts. |
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) |
|---|---|---|---|---|---|---|---|---|
| 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.
|
| 11 November | 1.0751 | 1.0921 | Donald Trump new U.S. president, reflation trade. |
-19970X125K | +1.4 bn. per week |
519.9 bn.
|
449.9 bn.
|
70.0 bn.
|
| 04 November | 1.0798 | 1.1099 | Chances of Trump are rising. Dollar retreats | -19970X125K | 0 |
518.5 bn.
|
451.8 bn.
|
66.7 bn.
|
| 30 September, 2016 | 1.0891 | 1.1230 | End Q3: SNB Window Dressing? | -5956X125K | +0.3 bn. per week | 517.4 bn. | 452.9 bn. | 64.5 bn. |
For the full background of sight deposits and speculative positions see