Weekly Speculative Positions: Speculators go short CHF again after a brief period of Long CHF

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.

Speculative Positions

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source: Oanda

There were five significant position adjustments by speculators in the currency futures market in the last full reporting period of the year, ending on December 27.  That many participants cut positions is not really surprising.  It is where speculators added to exposure that may be more intriguing.

Of the five significant speculative adjustments, by which we mean a gross position adjustment of 10k of more contracts, the Japanese yen accounts for two.  Speculators slashed gross long positions by a third (23.6k contracts) to 40.6k. They also covered 10% of their gross short position (12.1k contracts) leaving 127.6k contracts.

Speculators more than halved their gross long Swiss franc position.  The 19.2k contract liquidation brings the gross long position to 14.3k contracts.  It follows a 27.8k contract jump the prior reporting period, which we had suspected was linked to the contract expiry.  The immediate unwind of its lends more credence to our suspicion.  Last week’s jump in gross longs swung the net position in favor of the bulls, but not with the unwind, the net speculative position is short again.

That leaves the two currencies in which speculators took on substantial more risk in thin markets ahead of the end of the year.  The bulls scooped up 14.4k Canadian dollar futures contracts to nearly double the gross long position to 36.6k.  The bears saw an opportunity too and added 4.2k contracts to its gross short position which now stands at 38.2k contracts.  The net position was reduced to 1.6k contracts from 11.8k net short.

Of note the net speculative position in the Australian dollar is short 1.6k contracts.  While the net short position in the Canadian dollar was being reduced, the net Australian dollar position is falling ad shifted to favor the shorts for the first time in six months.  This swing in the net position was a function of the 11.2k-contract increase in the gross short positions to 45.6k contracts.  To illustrate the bearish development not the gross short position began the month near 27.4k contracts.  The bulls also saw an opportunity and added 5.8k contracts to the gross long position, which now stands at 44.1k contracts.

The bulls in the light sweet crude oil futures market are not disturbed by the continued broadly sideways activity.  They added 5.2k contracts, lifting the gross long position to 608.9k, just off the record 615k seen earlier in December.  The bears covered another 3.1k contracts, leaving them with 163.9k  gross short contracts, the smallest in a year.

The bears were undaunted in the 10-year Treasury note futures market.  They added 61.8k contracts to the gross short position, which at 792.3k contracts is a new record.  The bulls liquidated 58.2k contracts, bringing it to 451.3k contracts.  These adjustments saw the net speculative position jump by 50% to 341.1k contracts from 221.6k contracts, a new record net short positions.  Some of these late shorts seem vulnerable to a squeeze.