{"id":36924,"date":"2016-11-13T00:35:57","date_gmt":"2016-11-13T08:35:57","guid":{"rendered":"http:\/\/drduru.com\/onetwentytwo\/?p=36924"},"modified":"2016-11-13T00:35:57","modified_gmt":"2016-11-13T08:35:57","slug":"this-time-a-swiss-franc-hedge-makes-more-sense","status":"publish","type":"post","link":"https:\/\/drduru.com\/onetwentytwo\/2016\/11\/13\/this-time-a-swiss-franc-hedge-makes-more-sense\/","title":{"rendered":"THIS Time A Swiss Franc Hedge Makes More Sense"},"content":{"rendered":"

(This is an excerpt from an article I originally published on Seeking Alpha on November 6, 2016. Click here to read the entire piece<\/a>.)<\/strong><\/p>\n

Analysts are once again making a case for using the Swiss franc (FXF) as a hedge against a big event. Last time, the franc was supposed to be a hedge against Brexit. I argued at the time that the currency was a poor choice<\/a>. That argument happened to prove correct<\/a> although my extrapolation to a bottoming for the British pound (FXB) was premature (more on that bottoming process in a coming piece). This time around, analysts are arguing that the franc would serve as a good hedge against the U.S. Presidential election….and THIS time, I agree.<\/p>\n

Bloomberg lays out the argument in “Swiss Franc Offers Best of Both Worlds for Hedging U.S. Election<\/a>” (mostly in the accompanying video<\/a>). Essentially, there is a surprising divergence between the Euroswiss futures yield and the Swiss franc. {snip}<\/p>\n


\n
\"A<\/a>
A trading opportunity has arrived in the form of rate\/currency divergence despite presumed event risk from the U.S. Presidential election.<\/figcaption><\/figure>
\nSource: Bloomberg<\/a><\/strong>
\n<\/center><\/p>\n

Just as with the Brexit hedging argument, analysts assume the franc will not move much on the expected outcome of the U.S. Presidential election. {snip}<\/p>\n


\n
\"EUR\/CHF<\/a>
EUR\/CHF is near the post-Brexit low and its low for the year, but still well above levels seen for almost half of 2015.<\/figcaption><\/figure>
\nSource: FreeStockCharts.com<\/a><\/strong>
\n<\/center><\/p>\n

Speculative positioning also suggests there is an opportunity to use the franc as a hedge. {snip}<\/p>\n


\n
\"Net<\/a>
Net shorts are on the move against the Swiss franc.<\/figcaption><\/figure>
\nSource: Oanda’s CFTC Commitment of Traders<\/a><\/strong>
\n<\/center><\/p>\n

I have not traded the Swiss franc in a very long time. Like many traders, I have absolutely no trust in the Swiss National Bank (SNB)… {snip}
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