Weekly Sight Deposits and Speculative Positions: SNB intervenes, while Speculators go Long CHF

Headlines Week Ending December 23 , 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.

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 December 23:

ECB continues QE for longer than expected. The Euro fell to USD 1.0350 and CHF 1.0670.

Sight Deposits:

SNB intervenes for 0.5 billion CHF.

Euro/Swiss Franc FX Cross Rate, December 23

Source: markets.ft.com - Click to enlarge

Speculative Positions

Last Week’s data:

There was a sudden adjustment of CHF speculative position. Two reasons for us

1. The expiry of December contract was not rolled over given that speculators do not like sudden surprise like in January 15, 2015.
2. The Fed has hiked rates and with this fait accomplis speculators sold the news. They closed their short CHF and opened new CHF longs. And as opposed to Japanese pension funds, the Swiss have less possibility to invest abroad and seek higher returns. Moreover Switzerland has still a massive trade surplus.

Chandler sees the net long CHF quickly unwound.

Speculative Positions

Choose Swiss Franc for CHF Commitment of Traders

source Oanda