The Swiss franc used to be a good trading currency until the authorities
in that country decided to intervene in the market to ensure that it would not
fall below the level of 1.20 to the Euro. They did this because there was a
fear that its status as a safe-haven currency would make it appreciate so much
that the market for all kinds of Swiss exports would be damaged.
Now there is a new dispensation and safe havens are not as much in
demand as they were. The global economy is on the rise. The Swiss franc has
been quietly falling (USDCHF and EURCHF pairs have been rising), since the
middle of last December. As can be seen in the chart above, higher highs and
higher lows have been the order of the day. That is, until yesterday, when the
franc took on a sudden burst of strength. This was caused by the Swiss monetary
authorities significantly increasing the reserves that Swiss banks must hold.
In order to fulfil their obligations they have had to buy Swiss francs, which
resulted in the surge yesterday.
We believe this is a one-off and represents a possible opportunity. As
soon as the effect is worked out of the system, the pairs involving the Swissie
and the other majors can be expected to start to rise again. As soon as we
perceive that this is happening we will look at the possibility of taking a
position.
P.S: The bar with the long tail on the chart represents Dec 27th,
in the middle of the Christmas and New Year holiday, when trading was very thin.
We therefore regard this as an outlier, to be ignored for the purposes of
deciding where a higher low occurs.
The price of Iron Ore and the
Aussie
One of the greatest customers on the planet for Iron
Ore is China . While they have their own
mines for this hard commodity, they also import quite an amount of it from
other countries, particularly Australia .
While the Winter months in the Northern Hemisphere have traditionally been the
time when Iron Ore prices went up, due to the fact that Chinese steel mills
used this time of year to restock, this year the Iron Ore spot price is at the
lowest it has been for the last six months.
This is bad news for the Australian dollar, for two reasons. One, it is
a better measure of the way in which the Chinese economy is rationalising at
present than any trade or business activity survey and, two, it means that the
Chinese will be both buying less Iron Ore from Australia, and paying a lower
price for whatever they do buy.
The sell-off of the Aussie this morning is linked into perceived
weakness in China , combined
with the racing certainty that QE in the US is on the way out. The fall in
equities yesterday is part of the same process – the Federal Reserve does not
believe that equities impinge that much on the real economy, and were ripe for
an adjustment due to the fact that stocks were overvalued because of the
availability of cheap money that followed QE when it was introduced in the
first place.
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