by George Dorgan
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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 FrancSpeculators 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 25.4 K contracts.
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Mosts texts by Marc Chandler My articles My offerMy siteAbout meMy videosMy books Follow on:LinkedINTwitterSeeking AlphaAmazon Despite the yen’s decline in the spot market, the bulls were not shaken. They added 2.2k contracts to lift the gross long position to 74.4k contracts. That makes it the second largest gross short speculative position in the currency futures behind the euro. However, the bears dominated. They extended their gross short position by 39.5k contracts to 108.3k. This is the largest gross short position in a year. This drove the slide in the net position from short less than 300 contracts to being net short 33.9k.
The bears also hugged the US 10-year note futures market. They added 95.7k contracts to their gross short position, raising it to 711.1k contracts, which appears to be a new record. The bulls retreated, selling 36.6k contracts, leaving them with 482.5k. The net short position swelled to 228.6k contracts from 96.3k. Recall that in late November the net speculative position was long 172.6k contracts
The euro was the only currency futures besides the yen in which speculators made a significant (10k contracts or more) adjustment. The bulls liquidated 12.7k contracts (leaving 123.4k) and the bears covered 17.4k contracts (leaving 237.9k contracts). This produced a little slippage in the short position. At 114.6k contracts, the net short position was the smallest in seven weeks.
For the record, we include the speculative positioning in the light sweet crude oil futures market. The gross long position rose by 38.1k contracts to stand at 589.8k contracts. The gross short position was cut by 51.7k contracts to 212.2k. This translates into an almost 90k-contract increase in the net long position to 377.6k contracts.
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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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