highlights

Long USDCHF

Adding long USDCHF today

December 2, 2024

10 years ago, when my son was in 1st grade, he brought home a small green plant in a jam jar. It has been sitting on our windowsill ever since.

This week, it flowered for the first time ever.

Current Views

Long USDCHF @ 0.8867
Stop loss 0.8784
Take profit 0.8994

Short AUDNZD @ 1.1100
Stop loss was 1.1361 now 1.1216
Close 31DEC

Short EURSEK @ 11.6000
Stop loss 11.8650
Flip long 06DEC

Swizzle

Long USDCHF looks good to me over the next few weeks. Here’s why:

Quadruple bottom on the chart makes risk management easy. Below 0.8800 the idea is wrong, so a 0.8784 stop loss works nicely.

Rate differentials have been leading and show a bullish lean.
USDCNH has released to the topside after a long period of consolidating 7.20/7.25. It’s much easier for USD/G10 to go up when USDCNH isn’t stuck in the mud. Also 7.30 strikes are bid today, whereas there was infinite supply in prior weeks.
EURUSD bounced and touched and failed at the 1.0590/00 zone, exactly where it should have. It looks ready to dump through 1.05 again as the positioning has cleared out and there are minimal strikes to worry about on the downside.
EURCHF trades well even as EUR dumps against every other currency (EURGBP, EURJPY, etc.)
Swiss CPI overnight and risk is to the weak side. The data there is not seasonally adjusted, and 12 of 18 November misses have been weak since 2000. If EURCHF is at a six-month low (deflationary), November CPI has missed 38 out of 73 times (that is, it’s weak about 60% of the time when it misses). I am ignoring all “as expected” results as they are not market movers. Here is the full data.

I like the spot trade here, because it’s simple, but the ginormous carry makes options extremely attractive, too. Spot is 0.8867 as I type this and the 2-month forward is 0.8795. That’s quite a lot of cushion considering USDCHF vol is sub-8%. Compare that to USDJPY where vol is closer to 12% for similar carry and a central bank that is cutting in Switzerland and hiking in Japan. 2-month 0.90 digital trades under 25%.

I have decided to ignore year-end seasonality for now as I think the negative pressures on Europe and the bullish USD forces remain in force as the market needs to prepare for Day One policy shifts from the Trump admin (i.e., tariffs and tariff threats galore). From Axios this weekend:

Trump has been telling friends he denied Robert Lighthizer — his pro-tariff, China-hawk U.S. trade representative in the first term — a Cabinet role because he’s “too scared to go big.” He’s loyal but too timid to take big, risky swings, Trump contends.

Why it matters: Trump advisers are running out of words to describe what’s coming in January. They say he feels empowered and emboldened, vindicated and validated, and eager to stretch the boundaries of power.

Sure, that sounds hyperbolic but maybe hyperbole is well placed here. PS: The majority of the movement in USDCHF comes from changes in EURUSD, so this is a long USD play with a side order of short CHF.

Calendar

This week’s calendar is decent with ISM, Swiss CPI, Waller, Williams, Powell, and Jobs on the docket. Swiss CPI is especially interesting as deflation and the dreaded ZLB could soon be in play again in Switzerland.

Final Thoughts

The SNB meets on December 12 and the odds of a 50bp hike are close to 50/50 vs. 25bps. A super weak CPI should trigger a move towards 80% chance of a 50bp hike.
No strong view for Manufacturing ISM today but I don’t think it matters that much. The market has finally realized that manufacturing is a meaningless part of the US economy.
Phil Valori had an excellent view on INR which I published here in September. Nice call, Phil, as spot and vol have absolutely roofed of late. His timing was great as he suggested doing it before Trump/Biden debate.
This chart makes me say hmmm. It’s from Peter Berezin (BCA) via Twitter.