12-21-2009: March Swiss Franc: Euro Weakness Spreading to Franc
The Euro Zone is in trouble. Problems with the economy in Greece and its credit rating, followed by possible more problems in Spain, have shaken up confidence in the Euro. The Dollar is also losing its prominence as a low interest carry trade vehicle in favor of using other currencies for "funding" carry trades. The Euro will not be the first out of the gate in economic recovery, second to places like China and Brazil, and even falling behind the U.S. Latest economic reports do not seem all that favorable. It is pretty much the conclusion of analysts that there has been a major turn in direction to downward for the Euro for the near future. The Swiss Franc, like it or not, is tied into the Euro Zone and may see similar reactions.
March Swiss Franc:
March Swiss Franc:
Statements by Swiss National Bank President Jean-Pierre Roth included, "In no way has the financial crisis called into doubt the definition of the central banks' mandates regarding price stability." This was interpreted to mean that policy makers may look to allow inflation to grow in an effort to reduce national debt. That in turn bodes against raising interest rates. Earlier, concerns about deflation were eased by a 6% increase in petroleum costs. Household spending and construction in Switzerland is above previous estimates. The State Secretariat for Economic Affairs raised its growth outlook for the Swiss economy in 2010 from 0.4% to 0.7%. Exports expectations were also upgraded not only for 2010 but also 2011. There were improvements in orders on hand. The Swiss trade balance is a key factor but is trumped by concerns that the Swiss National Bank will stand aside and let local currency appreciate against the Euro. The Swiss Franc is a "low yielder," and intervention to make yields even lower to reduce appreciate against the Euro could lead to Franc weakness. The Swiss central bank has stopped intervening to buy bonds as the spreads in the Swiss franc bond market have narrowed. The Swiss bank formerly purchased $3 billion in Swiss Francs worth of corporate bonds. The Swiss Bank president left the door open to further intervention to counter "excessive exchange rate moves." The trend is away from the U.S. Dollar as the "primary funding currency" and toward the Swiss Franc and Japanese Yen. The term "funding currency" refers to currencies used to buy assets in higher-interest countries like Australia and Brazil in "carry trades." The banking investment firm UBS lost 564 million Swiss Francs and took a charge of 1.44 billion Swiss Francs for credit liabilities designated at fair value, closing of the UBS Pacrual sale, and conversion of mandatory convertible notes issued to the Swiss Confedration. UBS AG is Switzerland's largest bank.
106.0I T 12/18
I IMM - Mar-10 Swiss Franc, 125000 fr, $/fr Cm.=0.03 Lim.= 1.8
I
I
I
103.5I_________________________________________________________________________
I
I X
I X X X
I X XOX
101.0I________________X_XOX_X__________________________________________________
I X XOX X X
I XOXO X XO X
I XO X XO X X
I X O X XO XOX
98.5I________________X______OX_XOXO__________________________________XOXO_____
I X OXOXOXO X XOXO
I X OXOXOXO X XO O
I X OXOXOXO X X O
I X OXO O O X XO O
96.0I________________X______O_____O____________X___________________X____O_____
I X O X X X O
I X O X X X
I X O X XO X X X
I X X O X X XO XO X XOX
93.5I______________XOX____________O__XO______X_XO________XOX_X_X_XOX__________
I XOX OX XO X XO XOXOX X XOX
I X XOX OXOXO X XO XOXOX XOXO
I X XO OXOXO X XOX XO O XO
I X X OXOXO X XOXO X O
91.0I____________X_X______________OXO_O______XO_OXO______X____________________
I XOX OX OX X OXO X
I XOX OX OX X OXO X
I XOX O OX X X O O X X
I X XOX O X X O XOX
88.5I__XO________XO_____________________OX___X____O____XOX____________________
I XO X X OX X OX XOX
I XO XO X OX X OXOX XOX
I XOX XO X O O X OXOXOXOX
I XOXOXO X X O X O OXOXOX
86.0I__XOXOXOX_X_X________________________O__X______OXOXO_____________________
I XOXOXOX X X O X O OX
I XO OXOX XO OX X O
I X OXOXOX OXOX
I X OXOXOX OXOX
83.5IX_X__OXO_O___________________________OXOX________________________________
IXOX O O O
I OX
I O
I
81.0I_________________________________________________________________________
I
I
I
I
78.5I_________________________________________________________________________
I
I
I
I
76.0I----I----I----I----I----I----I----I----I----I----I----I----I----I----I---
11 11 1111111111 11111
23357902257891222334444455666799990000122222111233334666667778800012
01123031220113202220112222012211221223201123012001122011220230101200
70661715712520856061082409600269290091541931726562874515341917914894
The above point-and-figure chart is giving a conventional sell signal.
We are headed toward a cyclical high and a seasonal down period.
Our best-performing internal program for the Swiss Franc is "Project." Our second-best-performing internal program for the Swiss Franc is "WilderRT." Both programs are not always in the market, and both are out of the market at present, thus giving neutral signals.
Results of "Project" for Swiss Franc (blue lines = successful trades, red, unsuccessful): (Not always in the market.)
Our third system has just triggered a buy signal. (Note, disregard the year date on the chart. Our regular readers know this is not a Y2K-compliant system, but it still works.)
The point value is $1,250. Initial margin on a single contract is $4,725. Use of options is advised.
Scale trade sellers are entering the market in this price range for the long term.
In the chart below, the yellow line is the futures price, read on the right axis. All other colors are read on the left axis. Red is small speculators. Green is large speculators. Blue is commercials. Large speculators with the best track record are getting increasingly-short.
The average volatility shown below suggests that a major change in direction to up is imminent at a volatility low point.
Our option trade recommendation is to Sell the Swiss Franc March 93 Call @ 3.92 or better.
What the Mar. - Jun. calendar spread suggests to us is that buying the near contract and selling the far one is at most times profitable, which we think is a sign that these futures may go up. The best time to enter or leave the above spread is when it is at -0.04 or narrower selling the near as prices are falling and then buying the far, and exiting or entering when it is at -0.10 or wider buying the near as prices are rising and then sellling the far.
Here's an intraday chart for the previous day ( 12/ ).
Risk Versus Opportunity Report
________________________________
SFH0 March Swiss Franc
High Price: 97.99
Current Price: 95.94
Low Price: 91.81
Risk: -0.043
Opportunity: -0.087
(O/R) Ratio = 2.015
Level Table:
| Factors | Weighted Points |
|---|---|
| Parabolic Chart | - 1 |
| Nirvana Chart | + 1 |
| News | - 1 |
| Point & Figure | - 1 |
| Cyclicals | + 1 |
| Seasonals | - 1 |
| Internal System 1 | 0 |
| Internal System 2 | 0 |
| Third System | + 1 |
| Commitment of Traders | - 1 |
| Historic Range | - 1 |
| Range/Volatility | + 1 |
| Level Table | - 1 |
| Other Factors | - 1 |
| Total | - 4 |
Place 6 March Swiss Franc on a Sell Watch with stoploss @ +1.61 above the get-in point.________________________________________________________________________________________________________C.T.
