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Swiss Franc to Benefit from European Carry Trade Against British Pound

Currencies / Forex Trading Jul 14, 2008 - 06:31 PM GMT

By: Black_Swan

Currencies

Best Financial Markets Analysis ArticleThe ramp-up in credit risk in the market is huge. The pound is acting well today on the back of market risk.  But, in the recent past the Swiss franc has been the star currency that has acted very well on risk, for two reasons we think:

1) Switzerland still hanging on to some reservoir of safe haven status in times of global trouble (and despite severing its gold link to its currency, it is still has a larger gold backing than any other of the major currencies).


2) Swiss likely still benefiting from European carry-trade status – Because of Swiss low interest rates, many actors across Europe funded a lot of risk asset investments and real estate (now becoming a risky asset); as they reduce this leverage and pay back Swiss denominated loans, the Swiss franc benefits accordingly.

Above is a daily chart of the British pound – Swiss franc cross rate.  We think the Swiss should outshine the pound on this ramp-up in risk.  If it does, we could see a sharp break lower out of this narrowing range.

From Chartpatterns.com:

“Symmetrical triangles can be characterized as areas of indecision.  A market pauses and future direction is questioned.  Typically, the forces of supply and demand at that moment are considered nearly equal.  Attempts to push higher are quickly met by selling, while dips are seen as bargains. Each new lower top and higher bottom becomes more shallow than the last, taking on the shape of a sideways triangle.  (It's interesting to note that there is a tendency for volume to diminish during this period.)  Eventually, this indecision is met with resolve and usually explodes out of this formation (often on heavy volume.)  Research has shown that symmetrical triangles overwhelmingly resolve themselves in the direction of the trend.  With this in mind, symmetrical triangles in my opinion, are great patterns to use and should be traded as continuation patterns.”

And as you can see when you step-back to the weekly chart, the trend in the pound – Swiss pair is definitely down…

Regards,

By Jack Crooks

Black Swan Capital LLC

http://www.blackswantrading.com/

Black Swan Capital's Currency Snapshot is strictly an informational publication and does not provide individual, customized investment advice. The money you allocate to futures or forex should be strictly the money you can afford to risk. Detailed disclaimer can be found at http://www.blackswantrading.com/disclaimer.html

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Comments

Martinos
19 Jul 08, 07:43
Thx

Thanks for the interesting and informative site. That’s definitely what I’ve been looking for.


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