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Weekly SNB Interventions Update: Slight Rise after Weeks of Near-Zero Interventions


Headlines Week June 19, 2017

The pro-European politician Macron has won the presidential elections and now also secured the parliament.

He is a politician that promises economic improvements, more investment, more jobs. This is similar to Hollande four years ago and – by the way – similar to Trump.

As opposed to Hollande, Macron also advocates limitations on salaries and less social protection for workers, to restore France’s competitiveness.

Mostly probably he will fail – similar to his predecessor – because the French economic reality is simply different.

And so the EUR/CHF must go down again, but the main reason is monetary policy. See the following:



Euro/Swiss Franc FX Cross Rate, June 19

(see more posts on EUR/CHF, )
Euro/Swiss Franc FX Cross Rate, June 19

Source: - Click to enlarge

Why must EUR/CHF go down again?

The graph shows that the European Core Consumer Price Index has spiked.Many investors also hoping that the ECB will start reducing their bond purchases.

But this is an illusion: Oil prices are going down again and wage pressures are weak. Unemployment in the Southern countries is still too high.

So we see core inflation again at 1 to 1.3% for the whole year. Headline figure should dive to 1% or lower, once oil price changes are reflected. This should happen in December or early next year.

Eurozone Core Consumer Price Index (CPI) YoY, May 2017 (flash)

(see more posts on Eurozone Core Consumer Price Index, )
Eurozone Core Consumer Price Index (CPI) YoY, May 2017 (flash)

Source: - Click to enlarge

SNB interventions nearly at zero

But Macron increased confidence among investors so that the SNB interventions fell nearly to zero between Mid May and Mid June.
His success moved the EUR/CHF up to 1.0980, before it fell under 1.09 again.

Data of the last week:

Interventions are upticking again. The SNB intervened for 1 bn CHF, while the EUR/CHF is slowly falling.



Swiss private investors do not export their massive trade surplus with purchases assets in foreign currency, apparently because valuations of stock markets are too high and bond rates are too low still.

As consequence the SNB intervenes and takes the risk that private investors do not want. With this measure she either risks its bankruptcy or – over the long-term – she deviates from its mandate to avoid inflation. The last time she realized that was in January 2015, when the peg broke.

We should remind that the EUR/CHF is clearly higher than the 0.90 that we expect in a couple of years – in the case of a combination of inflation and recession.

Intervening at elevated exchange rates – buying euros at 1.08 or dollars at 1.00 – is risky. It obliges the SNB to accumulate owners’ capital – for example with dividends and coupons. Thinking that stock markets will always go up, is an illusion.

SNB Sight Deposits, May - June 2017

SNB Sight Deposits, May - June 2017

- Click to enlarge

Two Innings of Swiss Franc Appreciation

Two Innings of Swiss Franc Appreciation

    George, Do you still believe in Inflation game ? ( eur/chf - 0,9 ?) How about short term prediction ( a month, year ? ) Regards, Mark I have no doubt that the EUR/CHF (and also the USD/CHF) will go to 0.90. But there are factors that have a deflationary effect and delayed this currency movement. The most important factors are:
    • Ageing and increased saving during the years before the pension: The Eurozone is currently following Japan; this means temporarily low inflation. But finally there will be a shortage of labor and rising prices. Switzerland will follow only later - in particular because the Swiss import the needed labor.
    • Productivity increases in China or other Asian economies, when people move from rural areas to the cities and provide manufactured goods for advanced economies. This "core theme" from Michael Pettis is still happening today, it should end in about 20, maybe 30 years.
    • Productivity increases that cannot be not measured in terms of GDP (remember that productivity=GDP/hours worked). This happens when you create better company processes without the need for investment (which again is part of GDP) - thanks to the internet and computer-driven economy. Switzerland is one of the leaders in improving processes - last but not least, because of the high labor costs..
    • The Eurozone is still far from full employment, in particular in the Southern countries, so salary increases are still low. This item is quite important because it implies that inflationary pressures and rate hikes may happen in Switzerland first
In my original thesis, I took a simple assumption, namely the typical business cycles of seven years. But I ignored that these deflationary factors delay the second part of the game, the inflation game. Look at Japan, then you see how deflationary pressures can persist in an ageing, but not yet over-aged society. I would hence adjust my estimate to 20-25 years, instead 7. source post - Click to enlarge

Speculative Positions

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 data as of June 13:

The net short CHF position has fallen from 16.5 short to 14.5K contracts short (against USD).

But the major movement was that speculators are net long the euro now and not the dollar any more. This implies that they are also long Euro against CHF.

Speculative Positions

Choose Swiss Franc for CHF Commitment of Traders

source Oanda



Date of sight deposits (+ link to source) avg. EUR/CHF during period avg. EUR/USD during period Events Net Speculative CFTC Position CHF against USD Delta sight deposits if >0 then SNB intervention Total Sight Deposits Sight Deposits @SNB from Swiss banks “Other Sight Deposits” @SNB (other than Swiss banks)
16 June 1.0880 1.1197 French parliamentary elections -14460X125K +1 bn. per week 577.4 bn. 482.0 bn. 95.4 bn.
09 June 1.0856 1.1240 -16555X125K +0.3 bn. per week 576.4 bn. 476.2 bn. 100.2 bn.
02 June 1.0890 1.1218 -18512X125K +0.1 bn. per week 576.1 bn. 480.3 bn. 95.8 bn.
26 May 1.0912 1.1202 -19785X125K +0.5 bn. per week 576.0 bn. 489.3 bn. 86.7 bn.
19 May 1.0913 1.1105 -21162X125K +0.5 bn. per week 575.5 bn. 487.5 bn. 88.0 bn,

For the full background of sight deposits and speculative positions see

SNB Sight Deposits and CHF Speculative Positions

George Dorgan
George Dorgan (penname) predicted the end of the EUR/CHF peg at the CFA Society and at many occasions on 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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