Swiss National Bank Driving Franc Lower; Time To Go Long
Peter Brandt | Nov 18, 2015 12:11AM ET
When analyzing the charts of a commodity, stock or foreign exchange pair, it is always best to start with a long-term view and work towards the shorter-term.
The 100-year chart of USD/CHF shows that the USD is extremely cheap in historical relationship to the CHF, as shown below. Market observers who believe the USD/CHF cross is overheated do not have a clue. The clueless bunch were screaming “overbought” on USD/JPY back in January 2013 when the cross was under 90 to 1, on its way to 123 to 1.
The monthly graph, below, of the USD/CHF is extremely revealing. As a chartist, I ignore price action that is extremely short-term and clearly caused by Central Bank manipulation. This is the case with the monthly graph.
The chart displays a 4-year ascending triangle. The current advance is attempting to complete this massive base area. A decisive close above 1.0150 would complete this pattern and establish an upside profit target of 1.2350. Of course, the market is likely to create a number of consolidation areas on the road to this target.
One might ask: “Why is the CHF exhibiting such weakness?” “Does the Swiss National Bank want a weaker franc (stronger USD/CHF)?” The answer is a resounding YES!!!.
The chart below is of the monthly EuroSwiss interest rate. The rate is currently a negative 90 bp. This means that any entity holding Swiss francs must (in effect) pay 90 bp for the right to be long francs. What a deal!!!
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This graph is a clear indication that the SNB is engineering a weaker franc (higher USD/CHF).
Last, we will look at the USD/CHF daily price graph. The dominant feature of this graph is the completed 8-month symmetrical triangle pattern. The targets of this pattern range from 1.0636 to 1.1200.
Conclusion: A major bull trend in USD/CHF has commenced. This trend should be strong, sustained and extended. Factor in fully long the crossrate.
Disclosure: The information in this blog post represents my own opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.
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