Buy Swiss Franc, Sell Yen as a Top Trade for 2008, RBC Says By Ron Harui Dec. 10 (Bloomberg) -- Buy Switzerland's franc and sell yen as a top trade for 2008 because the Swiss National Bank will likely raise interest rates while the Bank of Japan keeps its benchmark unchanged, according to RBC Capital Markets. The lowest interest rates among the Group of 10 industrialized nations make the franc and the yen favorites for so-called carry trades to purchase higher-yielding assets. The 2.25 percentage point rate differential between the two nations has seen Switzerland's currency gain 3 percent against the yen in the past three months and offer a carry return of 3.6 percent. ``Relative value within the low-yielding currency complex has us favoring further upside on the Swiss-yen,'' said Sue Trinh, Sydney-based senior currency strategist at RBC Capital, a unit of Canada's largest lender. The franc is poised for a second annual advance against the yen and may reach 102.10 by the end of March, Trinh forecast, which would be the highest since February 1991. It was at 98.90 yen as of 2:10 p.m. in Tokyo from 99.02 late in New York Dec. 7. Switzerland's currency advanced 2.4 percent against the yen over the past 12 months as the Swiss National Bank raised its benchmark rate by one percentage point to 2.75 percent. The Bank of Japan has left its overnight rate at 0.5 percent since increasing it a quarter-point in February. Swiss inflation was the highest in more than six years in November while consumer prices in Japan rose in October for only the first time in nine months. ``The rhetoric we had from various SNB officials has been on the hawkish side, suggesting that rates will go higher,'' said Trinh. ``Bank of Japan rate hikes still look a long way away.'' Inflation Dangers In carry trades, investors get funds in a country with low borrowing costs and invest in one with higher interest rates, earning the difference between the two. The risk is that currency market moves erase those profits. ``We always have to keep an eye on inflation'' and there's ``very limited'' room to cut rates to respond to global financial market turmoil because inflation dangers have increased, Swiss central bank Vice-President Philipp Hildebrand said in an interview with the SonntagsZeitung newspaper last month. The SNB will leave rates unchanged at its next meeting on Dec. 13, according to a Bloomberg News survey of economists. Against the franc, the yen may extend its decline as a Bank of Japan report on business sentiment Dec. 14 may add to signs of a slowing economy, backing the case for the central bank to refrain from raising rates. Japan's Economy A government report on Dec. 7 showed gross domestic product grew an annualized 1.5 percent in the third quarter, below the preliminary figure of a 2.6 percent increase. It also showed the GDP deflator, a broad gauge of prices, fell 0.4 percent, compared with the initial estimate for a 0.3 percent drop. ``With third-quarter GDP revised down and the deflator falling, this makes it difficult for the Bank of Japan to be hiking'' rates, Trinh said. The Bank of Japan's quarterly Tankan survey of corporate sentiment will show confidence among the nation's largest manufacturers fell in December to the lowest since June 2006, according to another Bloomberg survey. Investors see a 2 percent chance the central bank will increase the key overnight lending rate at the conclusion of a two-day meeting on Dec. 20, down from 5 percent a week ago, according to Credit Suisse Group calculations based on interest payments.
I actually have small short positions on in both the JY and the SF based on the breakout and breakdown several days ago. These are strictly based on daily price action. Average hold times are about 30 days in each.
One thing I do not like about Jim Rogers. He constantly bashes the US. Moves his permanent residence, wants his kids to be like the Chinese, has no faith in America, etc. I think his bow tie is a little to tight. Not that I do not agree with "some" of his comments, but he better hope all his plans and ideals work out. It is easy to kick someone when they're down. I am working on a Jim Rogers sentiment indicator. It just signaled a short in Swissy and short in Yen. Wampum Fund.
atticus, I have been short the swissy (long USDCHF) for a few days and it really has not done much. I am taking every breakout I see on this pair right now because I have determined that the Monthly chart is in consolidation mode and is "coiled" for a breakout. Many think it is in favor of the franc, they may be indeed correct but I am not convinced. Right now I a sure hoping the latest breakout on the daily charts is "the one". Good luck on your trade, I will join you if things change. I am actually trading Swiss Franc futures, so I am short SF right now. richard
GL Richard. I am long USD, so we're in the same trade, different product. Out of another 1/3 at 1.1424, +92 pips. Holding the remaining 1/3 through XMAS.
To add to the contrarian Jim Rogers trades.... I am also long USDJPY (short JY Futures) for the same reasons. If you look closely at the USDJPY monthly chart you may draw the same conclusions that I did. The spring is coiled so tight it may explode. The red dots is just a simple visual that says that the BB's are inside the Keltner Channel. Just a lazy way to determine that we are in consolidation mode long term in my opinion. Now everyone thinks this is going to result in a massive unwinding of carry trades, derivative meltdowns etc. Maybe they are right, but I see it a little differently. Maybe I am wrong. If I am..I will just go with the flow when the flow happens.
Squaring here [1442]. +83 pips average on the full position. I was a weak-holder as I'd gone in larger than I felt comfortable.
To be fair to Mr. Rogers (hehe), he has had a dim view of US prospects for quite awhile. He was also accumulating commodities before they started their rise, when everyother clown was buying Inktomi, Ariba, etc.