The dust has not yet settled from the shocking SNB decision to release the 120 floor on EURCHF. Something I had considered possible, but unlikely.
In rare move for a developed country Swiss Franc appreciated 15%-20% (depending on when you choose to look at the screen) against most currencies.
Now what? Let’s forget about money we made a lost or in today’s commotion. What is the BIG CURRENCY TRADE for the next few years?
USDJPY (short Yen) 2010-2014 was the most profitable trade in my career. But it feels mostly done, the way I was thinking about it at conception. Now a new wave of traders who believe in a massively stronger dollar needs pick up the baton.
Short EUR has been another great trade for me. But where it stands today at 1.16, it is long way down from 1.40.
Is Swiss the new BIG SHORT?
I know little of Swiss politics, but clearly no one thinks that such drastic currency appreciation will be good for Swiss markets. But does it in itself mean that the currency has to correct?
I believe it does, but I don’t know when and how.
In 2010 when USDJPY was in the low 80’s, I had concluded that the levels were unsustainable. I hadn’t known what the mechanism of Yen depreciation would be. But I initiated the trade, believing that the economic forces would sort the market out. I could not have foreseen the dramatic political shift of 2012 and the Abenomics.
However, what I need to remind aspiring Swiss bears – it took two year of waiting and 5-6% of downside pain for the USDJPY trade to play out.
Are you ready for the pain and for the waiting?
As many people are pointing out, QE is not as easy implement in Switzerland as it was in Japan. There is not enough sovereign debt to buy. And as the world is becoming more dicey the flows into CHF might increase.
So how will the Franc be able to depreciate?
I don’t know how, but I believe it will. My inclination is to think that eventually they will find a way to print their own currency and weaken it. And maybe they will even overshoot.
Just don’t ask me about the time horizon and the downside.
i am initiating long USDCHF (short Swiss), but I am doing it with considerable caution and preparedness for pain.
i’ll sleep on it before deciding how far to commit.