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Weekly Speculative Positions: Short CHF Close to Records of 2015

Summary:
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. 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. Last Week’s data: Net Swiss franc shorts rose to 25.3 K contracts. Speculative Positions Choose Currency [embedded content] source: Oanda The most powerful speculative force in the currency futures is the turn of sentiment toward the Japanese yen. The bears added another 17.

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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.

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 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.

Last Week’s data:

Net Swiss franc shorts rose to 25.3 K contracts.

Speculative Positions

Choose Currency

source: Oanda

The most powerful speculative force in the currency futures is the turn of sentiment toward the Japanese yen. The bears added another 17.6k contracts to lift the gross short position to 125.9k contracts. It is risen in 10 of the last 11 weeks, over which time is has tripled

The gross longs peaked in early October at 102k contracts. With the nearly 12k contract liquidation, the gross long position now stands at 62.4k contracts. The net short position swell to 63.4 k contracts from 33.9k, the largest of the year, As recently as early November speculators were net long 43k contracts.

While the speculative adjustment in the yen seems contemporaneous with spot movement, the euro seems a bit different. Rather than go with the trend, speculators have been covering shorts. In the CFTC reporting period ending December 13, they covered 26.8k contracts and the week before they covered 18.4k contracts. Speculators are still short 211.1k contracts.

Other speculative currency adjustments were minor. Speculators mostly trimmed gross long currency futures positions, with the euro the only exception. Speculators mostly added to gross long dollar-bloc and peso position. The Australian dollar was the only exception. Speculators also added to the gross short dollar-bloc currency futures. Again the Australian dollar was the lone exception.

The net short US Treasury note futures position rose to 268.4k contracts from 228.6k. The gross short position increased by 9.3k contracts to a new record 720.4k contracts. The bigger adjustment was the liquidation by liquidation of 30.5k long contracts, reducing the gross long position to 452l contracts.

While the bears are in control of the Treasury market, the bulls had the oil market. The bulls added 25k contracts to the gross long position, taking it to 614.8k contracts, which is a new record. The bears covered 10% of their gross shorts to give leave 192k contracts.

13-Dec Commitment of Traders
Net Prior Gross Long Change Gross Short Change
Euro -87.5 -114.6 123.6 0.2 211.1 -26.8
Yen -63.4 -33.9 62.4 -11.9 125.9 17.6
Sterling -72.3 -77.2 40.5 -2.7 112.9 7.5
Swiss Franc -25.3 -25.4 5.6 -4.3 30.9 -4.4
C$ -21.9 -18.2 24.8 2.5 45.9 6.2
A$ 13.5 20.9 40.3 -8.0 26.8 -0.6
NZ$ -3.7 -4.0 29.4 1.8 33.1 1.5
Mexican Peso 57.7 -54.1 19.0 0.4 76.7 4.0
US Treasuries 268.4 228.6 452 -30.5 720.4 +9.3
Crude Oil 422.8 428.6 614.8 +25 192 -10%
(CFTC, Bloomberg) Speculative positions in 000’s of contracts

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George Dorgan
George Dorgan (penname) predicted the end of the EUR/CHF peg at the CFA Society and at many occasions on SeekingAlpha.com and on this blog. Several Swiss and international financial advisors support the site. These firms aim to deliver independent advice from the often misleading mainstream of banks and asset managers. George is FinTech entrepreneur, financial author and alternative economist. He speak seven languages fluently.

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