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Review of Currency relationships gives hint

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Last week we began adding some different items that traders need to be monitoring going forward as the market environment and world changed. One item we thought needed to be monitored was the US$ and Swiss Franc relationship. We felt it wasn't enough to simply be monitoring bond YIELDS to try and track some money flows, as recent events gave hint that money might actually move out of the United States and into other parts of the world perceived as "safe havens."

Trader's will argue the point that Switzerland is "safe" relative to other parts of the world, but often times we've seen money flow into that currency it times of "global political uncertainty." We're still tracking the US$ and Swiss Franc relationship and the 10-minute chart gives traders/investor some interesting insight as to how fast the market responds to things, and how the Swiss Franc relationship can add to your analysis.

While the 10-minute chart is considered a "short-term" interval, traders as well as investors know that the long-term begins with the short-term. With that said, traders can study and begin to understand just how the US$/Swiss Franc relationship has been playing out. The trend his higher right now and shows a Swiss Franc gaining strength against the US$. I've labeled four points that perhaps many can understand. Much like myself, when the first plane hit the WTC, we see a quick spike in the Swiss Franc, then some settling. When the second plane hit, that's when all heck broke loose as the reality set in that it "wasn't just a bad accident." By Monday's open, the Swiss Franc was on a roll as traders began betting that money would leave the US$ and convert into Swiss Franc (there were other currencies gaining strength, but my view is the Swiss Franc is perhaps "safer" than Japanese Yen) and then yesterday's sharp move higher to a new relative high had stock selling off here in the U.S.

In brief... I think traders and investors want to see the US$ gain back some strength vs. the Swiss Franc as this will indicate a more calming perception toward the US$ and perhaps the MARKETS perception of confidence in the US economy and economic strength going forward.

I've said before that the MARKET is very good at assessing risk/reward and placing its money in those investments based on its perception of where it feels risk lies. As it relates to currency, this is often times one of the main building blocks that support the house. Bullish equity traders want to see the US$ get back some lost ground to give hint that world confidence remains strong toward the U.S. and companies based here.

Jeff Bailey
Senior Market Technician

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