Analysts at Westpac make a good point on repositioning after the SNB move.
Value at risk (VAR) levels will be surging thanks to the extreme move in CHF, coupled with high and rising volatility in other asset classes, most notably commodities in recent days. As a result asset managers of many stripes will be forced to liquidate risk/positions. For G10 FX, favoured positions have been long USD / short AUD, CAD, EUR and NOK. The initial move in G10 FX will thus be position driven and the likes of AUD, CAD, NOK, EUR, et al should firm in coming days, perversely given higher levels of volatility typically weigh on these currencies.
The forced liquidation of positions following the collapse of Lehman’s played out of over many weeks and in many seemingly unrelated instruments across financial markets. We should expect the same, though to a much smaller degree.
The CFTC positioning also gives a good idea of where specs are loaded up.
They also note that the SNB holds CHF495 billion in foreign currency reserves with around 30% in euros and due to the losses, it could require a recapitalization. Nevermind the deflationary shock that’s coming to the economy.
