It's a one-two for the muppet mauling masters at Goldman Sachs, who first crucified anyone who listened [8]to the Buy Best Buy reco from Tuesday, and now, those who put their money into Top Trade #6 for 2015 by the Goldman uber traders, which was to Short CFH/SEK - obviously on margin - just got crucified after the unlevered pair just crashed 16.5%, stopping out those who listened to Goldman and sold CHFSEK to Goldman's prop, pardon flow, traders, and leading to a complete loss on margin, unless of course one has an infinite balance sheet.
From Goldman's Robin Brooks, who is not quite Tom Stolper yet, but is slowly getting there.
Trade Update: Closing our Top Trade Recommendation #6: Short CHF/SEK as SNB removes minimum exchange rate
We close our Top Trade recommendation to be short CHF/SEK, opened at 7.70 on November 20, for a potential loss of 16.5% including carry, following the SNB’s removal of the EUR/CHF minimum exchange rate of 1.20. At the same time, the SNB cut rates further into negative territory to ?0.75%. EUR/CHF touched a low of 0.86 before recovering to around 1.02 at the time of writing.
The SNB’s surprise decision to abandon the floor today was linked in the press release to diminished overvaluation of the Swiss Franc. Our own measure of fair value for EUR/CHF (GSDEER) suggests that fair value has fallen from around 1.44 in 2010 to around 1.40 currently. As such, while the overvaluation of the Swiss Franc may have been diminishing, this effect looks to have been relatively small on our estimates, not least given the sharp appreciation of the CHF today in the wake of the announcement. Indeed, on our trade-weighted index of the Swiss Franc versus the G10 currencies, today’s strengthening in the Swiss Franc takes it above its peak value back in 2010, even factoring in the decline in EUR/$ in recent months.
Our trade recommendation was based on the idea that inflation dynamics in Sweden do not share the same structural component as those in the Euro area, and that this should ultimately be reflected in diverging monetary policy and the strengthening of the SEK vs the EUR. While this view remains intact – we continue to expect EUR/SEK lower – the implementation using the CHF on the short side was contingent on the SNB’s maintaining the floor. We close our short CHF/SEK recommendation for a potential loss of 16.5%.
Once again, one picture is worth 1000 Top Trade Recommendations:
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