Today’s Comment
Since early December, the speculative IMM positions have developed in favour of the dollar. The number of sold contracts is getting to a level that investors should keep an eye on, i.e. a fairly high level (about 1½ standard deviation from the historical average). This means that the market has a very negative view of the euro/positive view of the dollar, but the level also indicates that the relatively strong movement since early December has caused the elastic to tauten.
Considering the timing of the central bank’s intervention, the purpose of SNB’s (presumed) intervention may seem a bit vague. Generally liquidity is lower for EUR cross rates in the Asian time zone; Tokyo had just gone to lunch at 4 o’clock (CET) and trading took place at 149.05 even though the market at that point was considerably lower. Previously we mentioned in Spot On a couple of possibilities for the SNB to gain a stronger effect from its intervention. One of the strategies we described was that the SNB remove all the stops that undoubtedly were in the market. The question is now whether this was the objective and, if not, what it then was. The rate has been very stable since the intervention on Friday and this can undoubtedly be attributed to the great uncertainty that SNB caused in the market. As usual, the SNB did not wish to comment on the market movements. 1) Increased uncertainty may, per se, have been the purpose, but considering the PIIGS problems it can also be argued that this is not the best time for increased uncertainty. 2) The action may also have been purely mechanical on the assumption that if the rate fell below 146.50, EUR/CHF was to be bought to bring the rate back above this level. 3) A third possibility is that the SNB did not like the idea of speculation against the central bank. The movements in the market overnight may have cost market players dear (due to the stops that may have been affected) and when speculators are beginning to hurt financially they pull in their horns.
No important economic indicators will be released today. The most interesting indicator is retail sales in Switzerland.
Today’s events
- 09:15 Retail sales (CHF)
- 01:01 RICS business trend survey (GBP)
Today’s Chart – CFTC Commitments of Traders (EUR/USD)
