Flows and positioning are quite important in the short term currency markets. They won't necessarily tell you where the market will go but they can give you a useful insight into the balance of risks. Your example about the Swiss franc is most interesting... the recent rally following Sep 11 was partly driven by psychology but market positioning was a major element. Many hedge funds and other money managers had short Swiss franc long dollar/Euro positions due to the interest rate differential. After Sep 11, the fear that the US dollar would sell off caused a lot of leveraged and speculative money to close out their short Swiss franc trades causing it to rise. Also, Switzerland is a very substantial net creditor and in times of crisis there is a trend to domestic currencies which adds to the effect.


I do think you can successfully trade currencies on fundamentals but only if you are willing to take a very long horizon(maybe 5-10 years). In the short term, they are driven much more by supply and demand which on the large investment banks really have access to.