I personally don’t thing that now is right time to go long at Swiss franc, because Swiss franc is safe haven currency and i think that we are not at the end of unstable situation now, look at Europe Pigs states problems, USA debt problems etc. I think that support around level 0.800 - 0.79 will be very good and we can see some fib retracement to levels 0.82 - 0.84 but not full bullish trend for next several years … not yet … i personally wait to lower levels.
It looks like a counter trend trade to me, I’m not saying it’s wrong, but it’s a big no no for me.
I think the pair is headed to circa .7800 at the beginning of next week before a reversal. I would have circa .8136 as my target.
I almost 100% ignore fundamentals for my trading… but since we are talking about trends that last years or even decades…
all chart patterns aside (can’t believe i just typed that)… as long as the U.S. government keeps interest rates under 1%, while entertaining the thought of more potential quantitative easing, and fails to obtain a more balanced federal budget relative to the current federal deficit, the swiss franc will increase in value relative to the U.S. dollar.
It is also fairly common knowledge that the swiss government states that approx. 40% of their currency is backed by gold. The U.S. . does not state how much gold it has in it’s control, though it is generally accepted that it has nothing even close to the order of 40% gold backing. And I may be mistaken, but I believe gold has increase in value relative to the dollar over any given 10 year period since the U.S. went off the gold standard in the early 1970’s… and that’s accounting for inflation. Take out inflation, and I doubt gold had any more than a 3 - 5 year pullback in value against the dollar.
I’m not saying we won’t see some increase in dollar value to franc value at times… but given the time horizon your charts are showing… no move up will be sustained for any decent period of time (more than afew months, a year at best) unless one or more of these factors come back in favor of the U.S.
namely:
-
a more balanced federal fiscal policy,
-
a greatly strengthened fiscal policy from the fed (interest rate hikes and/or an abrupt and complete elimination of all
qualitative easing policy) -
a precipitious drop in gold prices
… and the least likely of all - a cultural, economic, and political change that puts the U.S. back in a position where the emerging asian markets are currently: an almost pervasive cultural mentality that values a strong work ethic, larger spanning community contributions, while simultaniously disdaining the idea of governmental financial assistence of any sort, and by and large abandoning the popular american love of consumerism. (hey, as an american, i can hope…right?)
[B]Or, unless the following factors start to take shape in the land of chocolate and the alps:[/B]
-
The probable breakup (or at least dramatic change) of the euro union destroys the currency as we know it, and the fear spills
over into switzerland. -
Swiss culture becomes a culture of entitlement (much like greece, and to a lesser degree italy and the U.S.) Remember,
there is a big difference between a culture that has public money pay for many things…and one that DEMANDS it
-
the swiss government adopts a policy of federal budget imbalance that, per GDP, rivals that of the U.S.
-
the swiss government adopt a much more libral fiscal policy than they currenly have.
-
the swiss government dumps their gold on the open market
-
the swiss goverment discloses that they have no where near the generally accepted 40% gold backing their currency
-
the swiss go to war (ya…right)
Until at least one (or ideally two) of these variables change…any rally up in USD/CHF will be shortlived… no more than a year i’d presume. I believe the most likely to change are:
Value of gold drops a large percentage for a sustained period of time
U.S. raises interest rates (tied to value of gold drop…possibly will be a catalyst)
U.S. refrains from qualitative easing (and publicly states it…this will likely come before an interest rate hike)
Euro financial problems increase…and euro breakup is accelerated.
So there you have it. those last 4 things will probably be what has to come to pass first before a long term trend change in USD/CHF is likely
All tech analysis concepts aside… look at it this way. USD/CHF on a 50 year decline. is it because a fib projection level or elliot wave pattern said so? No. It is because the U.S. government, as well as the U.S. citizen, has stubbornly adhered to a liberal fiscal mentality that could even be described as an entitlement mentality since the vietnam war era. Switzerland, neither the people nor the state, exist in that paradigm.
Jay
P.S. And one last consideration… if you were one of the up and coming folk from the emerging asian market side of the world… a sophisticated entrepreneur or even corporate executive or federal monetary policy advisor… would you rather open a bank account with a bank that is constantly borrowing to pay it’s OWN debts… it’s land lease… it’s employee salary…etc.
Or would you rather open a bank account with a bank that has a longer track record of superior money mangement, and a far less likely chance of any default in any way shape or form.
Your money in your account should be safe no matter what happens to either bank, but still… human nature tends to err on the side of caution. If I were an emerging asian market… i’d only hold enough dollars to conduct my business as needed…as for my profits and savings, i’d ship it to the Swiss.
Jay, thanks fot that post. Probably the best one I have seen on all of babypips.
Thanks for sharing.
I think it looks like a butterfly pattern, I’d predict to go long as well.
So how do you explain what occurred Jay? The market behaved as This post anticipated, We had the largest daily advance on the usd/chf in history this August… Fundamental enviroments lag prices, The market enviroment is a result of price action rather than the contrary. Despite your lengthy detailed analysis, The market rallied substantially.
Good luck
Allow me to correct. The Usdx top which coincided the all time high in the usd/chf was in 1971 rather than the 1950’s - 60’s as stated on the picture
Well… the dollar index hit an extreme oversold condition that is larger than anything seen in the last 7 years (maybe longer…thats as far back as i took it)
I would say this move up had nothing to do with esoteric calculations… and all to do with a relative lack of liquidity for anyone short the DX to cover, resulting in a simple imbalance of supply and demand.
SImply: not nearly enough supply…and way way way too much demand.
Btw… I’ve been primarily trading long the dollar this whole week. So I enjoyed some of the same profits you did.
I’m still long the dollar against several european currencies now.
But make NO mistake about it… there is one thing, and one thing only that will act on price to create any change to any degree: an imbalance of supply and demand.
And frankly, I think there are simpler, and more accurate ways to predict future price change.
BUt…we will have to wait and see about 51 more weeks here buddy. As I said… a “sustained move up lasting a year or more”
Of course we’re gonna go up sometimes! and down too! that’s the way of all markets.
Furthermore…i mentioned that if the euro problems increased…and the U.S. refrained from qualitative easing…then we MAY just have a long sustained move…and, as you and i both know…the u.s. is currently taking a more conservative monetary policy that europe is (at least as of this last week! but that could change! lol)
My point wasn’t that they usd/chf wouldn’t go up. i didn’t know it when u first made this post…but i sold gbp/usd about 15 pips off last weeks high, and held some of the position for 200 pips. I’m short now again, looking for more of a drop…and if usd/chf hits a level i’m looking at to be a buyer…i’ll go long that one too.
My point was the REASONS for the movement have little to do with your analysis…and more to do with the fact that there is simply not enough supply for the demand of the DX…and problems in europe are worse than when this thread was originally started… and the US, in comparison to europe, is now taking a more conservative fisical policy than they were at the time of this thread being started.
I’m just applying occams razor here (which states the simplest answer in science is usually the correct one) Is it more likley that currencies move based off relatively complex mathmatical models, or more likley that they move because of an imbalance of supply or demand.
I’m going with supply demand here over anything that does not have a direct correlation to auction market dynamics
I have a feeling we’re gonna have to agree to disagree on this one tho… and that’s O.K.
But…i’m glad you made a profit. I’m glad I did too. I’m sure we can both agree on that.
Jay
I got to agree with Jay here this thread is talking about going long since we are at 50 year lows sure you put a technical spin on it but at the end of the day that sums it up. But a good day or even month of rallying hardly states up trend to me. Sure on smaller time frame it will go up it will go down it will go sideways. All market always have and always will. But a 50 yeah down trend is hardly going to be out done buy a single day of rallying. However I guess an uptrend must start somewhere right.
This is kinda like if I said that I was fairly confident Miguel Cabrera was going to win the batting title again next year, and you told me I was wrong because you just saw his first at bat of the season and he grounded out.
Didn’t I read somwhere recently that the Swiss are intervening to push it up? It seems like interventions only make short term spikes.
I’ve been trading USD/CHF recenlty but only on small time frames like 4hours. Sometimes it goes up and sometimes it goes down… funny how price does that.
Snoggins… I kinda suspected you’d feel that way about your methodology.
But, since you responded, lets take this one step at a time…and see where we can agree, and, see if we can be flexible and objective to new information, or if we hold our beliefs more.
Now, I’ll start. It is my belief that if supply exceeds demand… then price will go down. If demand exceeds supply…then price will go up.
I’ll admit, this is an oversimplification, but essentially, if a price range has too many buyers than it does sellers…price will rise. and, it will drop if it has a more sellers than buyers.
I think (hope?!) we can agree on this point. Now, i’m gonna move to my point 2, and then i’ll let u take the floor.
I believe there are a wide variety of factors that influence when there is more supply than demand, or demand than suppply.
Some of them are fundamental. Not in a literal sense…but, take for example how fundamental traders actually trade. I’m gonna steal an example from a book I read by a very good trader about the euro.
A Fundamental trader will look at the euro, and perhaps say to themselves “there is a 15% chance the euro will default. Therefore, the value of the euro should be 15% lower than current price, to reflect the chance of default”
So, they enter orders to buy or sell at certain price points based on THEIR interpretation of the market.
Others… like large commercial institutions (think toyota corp, IBM, IKEA), they have resting orders a specific points in the market…as they are exchanging currencies at the rates they need to be able to conduct business. They place their orders not based on sentiment, or for speculation, but at a specific price point (much like a store buying inventory at a specific price point)
And then some, use a variety of technical tools.
and you also have the soverigen interests mentioned above.
Now, in my opinion… i believe in cause, and effect. I will not argue that this particular analysis of yours is, so far, working out as you said.
If you could correctly explain to me how your analysis relates to understanding the cause of why certain orders (buy or sell) are placed at certain prices and times in the market…I would immediately agree 100% with you, in everything you’ve said.
I will not deny there are some mathematical concepts that seem to play out with some degree of predictability (fibonnacci levels, for example),
however, I would never take a trade only because a fibonacci level existed at some point on a chart. I personally spend a great deal of time trying to determine exactly how likley any given price level is to have a large imbalance of buy orders and sell orders. Because regardless of what anything else says…the only thing that makes price go up is more demand than supply at that price point.
And the factors that influence people to put buy orders at this price point? probably as many factors as stars in the sky.
Now, if you can show me how your math models have a cause and effect relationship with supply and demand, I
will concede this debate immediately.
Jay
P.S. Also Snoggins…you keep ignoring half of what i’ve said…you seem only to respond in a blanket statement that because
I believe your method of analysis is inherently flawed, that I think this particular trade is flawed.
I frankly have no idea or opinion on whether this prediction is wrong or if it is right. As I said, I made money trading european currencies short the other week, and actually caught a very nice usd/chf short trade just last week.
I’ve found markets go up, and they go down, and If when i can find when an order imbalance exists, i make money
regardless