Who wants to be the safe haven currency of the world? - Noone

* FX intervention risks are increasing for CHF and JPY this week.
The Japanese authorities are planning to establish an investmentfund designed to acquire properties held by real estate investment trusts, REIT;s. It will be financed by raising capital from the public and private sectors. If implemented, this will create an investment opportunity within Japan that could partially reverse the hefty outflows already seen including the accelerated ones expected past the fiscal year end.

Furtheron, the Japanese governments is also considering a tax incentive to bring back some of the 17 Trn Jpy overseas profits from Japanese companies.
This should all be short term Jpy supportive.

On the other hand, with the latest bout of Jpy strength into the Japanese fiscal year end, Japanese lifers and insurance companies should be suffering currencylosses. So much, infact, that the risk of Japanese intervention has risen quite substantially for the next 24 hours.
A set up for Jpy volatility in other words. I am long Eur/Jpy gamma.

The SNB has a somewhat different situation,but it will also lead to an increased FX intervention risk. With the Swiss bondmarkets not being deep enough for quantitative easing, the SNB will have to continue to use the FX market in order to maintain it. With the CHF strengthening on the back of increased riskaversion and a battle against fundamentals, the SNB will have to intervene before long. This, too, should create increased FX volatility near term. I am long Eur/Chf gamma.


*Bank of Norway following in the footsteps of the SNB?
Risk is increasing that the Bank of Norway will follow in the footpath of the SNB. Quantitative easing definitely seems to be on the Norwegian agenda and since the Norwegian bondmarket is too small to apply it, it will have to involve FX if quantitative easing is to be applied.

With the NOK increasingly being nominated the safe haven currency of choice for many Fx positions, it is increasingly becoming a burden. Thus, although the long Nok/Sek position squeeze is already in motion, one should not rule out Fx intervention to weaken the NOK. Although, I do believe that would be a mistake. In any case, I am winding down my remaining long Nok/Sek position and will monitor this one closely from here.

* Eur/Usd set to weaken further
The ECB meeting this Thursday may reveal an ECB considering quantitative easing in practise and not just in theory. The G 20 should not expect any massive fiscal stimulus measues from the Eurozone. The revelation of the 9 BN Eur bailout of the Spanish bank Caja Castilla La Mancha is yet another sign that the European banking crunch has just started. This was the first major Spanish bank rescue in 16 years.

Alledgedly, Caja Castilla represents only 1% of the Spanish financial system. However, if this 1% requires a 9Bn Euro bailout, I cant help but think how much will be needed in total before the Spanish bailoutstory has played out? Further, how much can the already hard pressured Spanish budget really afford? Or more correctly, how big will their deficit become? How much can Spain handle? How much can the Eurozone handle?

Lets keep our fingers crossed the Latin American economies keep on doing relatively well,,,,, One should of course remember that Spain is only one of a large number of countries in the Eurozone and within the EU that is in serious financial trouble. Yet, the ECB is pretending it is not happening. Additionally, the European commission is up for reelection as is the European parliament. The risk for yet another European action paralysis is evident. Facing the current challenge it is illtimed, to say the least. The risk that the European banking crisis will supersede the American one is increasing.
I am long Eur/Usd puts, gamma.


* I have bought bank puts on European banks with Baltic and CEE exposure again
I expect the bankpressure to increase as I expect another refocus to take place on the European front. The impression I am getting is that the banks stuck in countries with fixed exchange rate systems do not realise how serious the situation will actually become for them. Instead my impression is many bank CEO;s are behaving like Ostriches, keeping their fingers crossed everything will sort itself out. Well, it will not.

The phrase "we remain committed to these markets for the long term" and "these are our homemarkets" seems to be the mantras. I cant really blame them though. With no riskmanagement due to the gross mismatch between balancesheet and market values the only choice is to declare insolvency or deliver platitudes as per above.

I read an interview with one of them over the weekend. Unfortunately he made it abundantly clear he had absolutely no clue what he was talking about. A lot of what came out was hastily compiled platitudes from other bankstaff which he had been forced fed. It does not bode well for what is to come. I am long bank puts with exposure to the Baltics and CEE countries.

*New positions apart from the above
- Long strangles on the VIX
- Long Eur/Huf, Eur/Pln, Usd/Try, Usd/Rub, Eur/Sek (Already taken partial profits on these but still long)


As always, good luck




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