by Marc Chandler
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The US dollar recorded its high for the year against the Swiss franc on January 14 near CHF1.0240. It closed that day a little below CHF1.0190. The next day the Swiss National Bank surprised the world by lifting its cap against the euro. The dollar plunged to nearly CHF0.7400.
It has taken increased prospects of a Fed rate hike, negative 75 bp on sight deposits at the SNB, and the prospect of more, if the European Central Bank takes additional unorthodox monetary measures in early December as many expect, to allow the dollar to fully recoup that one day of losses. The dollar reached CHF1.0226, according to Bloomberg yesterday.
Since mid-October, when this leg of the dollar's advance began, the greenback has risen about 7.75% against the franc. Speculators in the futures market have increased their gross short franc position three-fold over this period to 34.3k contracts. This is the largest speculative gross short franc position since May 2013, which itself was the largest since 2007.
The SNB meets again on December 10. The 3-month LIBOR range is set between -25 bp and -1.25 bp. Talk of a 20 bp cut in the ECB's deposit rate or more could elicit a response by the SNB. The market is discounting this prospect. Given the political tensions, many are surprised by the muted reaction by the Swiss franc. This too may be seen as a sign of the extent of the bearish sentiment.
Technical readings are stretched, but the MACDs and RSI do not appear to be rolling over yet. It may take a break of the CHF1.0080-CHF1.0110 to pressure the late shorts. The next major upside target is near CHF1.05.
He has been covering the global capital markets in one fashion or another for more than 30 years, working at economic consulting firms and global investment banks. After 14 years as the global head of currency strategy for Brown Brothers Harriman, Chandler joined Bannockburn Global Forex, as a managing partner and chief markets strategist as of October 1, 2018.
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