by George Dorgan
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Headlines October/November 2015
October/November 2015: As response to Draghi’s QE thread, the SNB threatens to lower rates further. A big speculative position USD long and CHF short is building up.
October 23: Draghi announces that the ECB could continue QE. Logically the EUR/CHF continued its descend and fell under 1.07. The SNB had to intervene for 1.1 bn. CHF.
October 16: EUR/CHF trends downwards, because US rate hike hopes fade after the FOMC. This implies that rate hike hopes for the ECB fade too. Another 600 million CHF of interventions, this time absorbed mostly by other counter parties.
Sight deposits of Swiss banks rise over 400 bn. CHF. This is 36 bn. more than the 365 bn. on January 22 when negative interest rates of 0.75% were introduced. At the time, the existing sight deposits were not paid, but the delta of 36 bn. costs the banking sector 0.75% per year. Hence it reduces income/GDP by nearly 300 million CHF.
Bad US job data: both euro and CHF rise against the dollar, given that the US rate hike might be delayed to 2016.
Sight Deposits October
Other sight deposits: the ones of non-Swiss banks, institutions like foreign banks, hedge funds or independent asset managers, are falling again after a quick rise after the US job data. They are nearly unchanged since January 22.
Speculative position USD against CHF: Remains long USD despite bad US job data and fading hopes on a rate hike.
End September: Volkswagen scandal
EUR/CHF rate: EUR/CHF fell with the Greek elections but the euro is rising again. The Volkswagen scandal may weaken the German trade surplus. We know that Switzerland is a proxy for the German economy. Via trading algos this implies some CHF weakness.
September 21
EUR/CHF rate: When FX speculators hear the word “Greece”, then they often sell euros and buy CHF. That the Greek GDP is only tiny part of euro zone GDP does not matter. According to the CFTC, speculators were long CHF and short USD.
September 7
Strangely EUR/CHF continues its ascent on September 7, despite the ECB threat with more QE.
Until End August
Shortly before January 15th, 2015, the speculative position was at it highest. Remember that all such carry trades – a strong speculative position that counters real money, collapse one day. In our view, the carry trade should continue until EUR/CHF reaches 1.10 or 1.15. The carry trade could run 3 to 5 years, before it should collapse again to EUR/CHF 0.90. Time for the SNB to collect some dividends and coupons to avoid a bankruptcy.
July 15th to August, 15th: Sight deposits have risen by 2.5 bn. in the course of one month. But a big speculative position is building up against CHF. Sight deposits do not capture these movements because they are not portfolio investments for the balance of payments. They happen at FX brokers. But long-term investors still like Swiss stocks.
July 13th: Another 2.1 bn CHF of interventions, a deal with Greece is not yet achieved. Inflows mostly came from local banks They seem not to fear negative rates. This delta in sight deposits, is probably punished by negative rates. But the SNB seems to be convinced to keep EUR/CHF over 1.04, without considering that many exporters (like pharma and chemicals) take advantage of the stronger dollar.
July 6th: Surprisingly only a small intervention of 1.4 bn. CHF during the Greek referendum week. Reasons might be that the European recovery still avoids inflation. See more in the two phases of CHF appreciation.
June 29th: Greek referendum announced and talks on Greek ended. According to Forexlive.com, the SNB has intervened. For us, this must have been at the lower area of 1.0312 in Asian trade, but not at 1.04.
June: The pace of SNB intervention is slowing. Sight deposits rise by 0.5 billion francs per week.
April and May: Sight deposits rise by 1.5 billion CHF per week, hence the SNB seems to intervene with a pace of 1.5 billion francs weekly. Recently the SNB increased the loans with the Swiss confederation.
Between Feb 21 and April 3: No major change, no SNB interventions
The last one, the one for March, is the following:
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