Swiss Franc Trading - A Focus on Change

Happy New Year! Hope this is your best year ever trading.

A Focus on the Swiss Franc in 2008

http://www.morrisfunds.com/storage/f...witzerland.PNG

Let's have some fun with the Swiss Franc. I want to use this thread to discuss trading it short term, intermediate term and from a long term perspective, as well as keep track on my long term bullish view of the dollar. Since long term views are very boring on a day-to-day basis, I am going to do my best to discuss daily trading of the Swiss Franc as well for those who may enjoy this currency pair.

"I am buying Swiss Francs" --- Jim Rogers, Renowned Invester , August 2007

Jim Rogers and other well known loud mouths buying the Swiss Franc. All the dollar doom and gloomers, all the carry trade armageddon folks. I DO NOT disagree with Jim Rogers views on the economy and the Fed. However, it is his way of delivering the message that I disagree with. I think Mr. Rogers may be the only coward who has completely deserted his country in time of need though. It is people like Jim Rogers who are weak and a country doesn't want anyway. People like Jim Rogers who could really help, but chooses to run. I hope the fine people of Western world teach him and his children well. I hope he enjoys his stay in China and learns as he grows old for we are always learning as human beings. Sometimes money is only a small part of our education, sometimes it is a large part. Jim Rogers reminds me of a professional athlete who wants to play for the winning team. He advances to the top of his profession through hard work and dedication. Soon he has caught the attention of a winning team like the NY Yankees and they call from time to time. They invite him to their land, to meet their winning team. Finally, his current team is not in the spot light at all, they are near the bottom of their group although they are working as hard as possible and have a fine athlete and leader on the team. This athelete used to teach the young players how to become great. Soon the athelete runs to the winning team with all the money and fame. Once he arrives, he tends to shun his old team, the team that gave him the opportunity to become great in the first place. The old team continues to struggle and now look for new leader to emerge from their group to help. At first the Yankees are fun, they keep buying winning seasons. When they play his old team they usually win. At first the fans from his old team cheered him, then the more he visited thet more lhe heard loud boos that were mixed in. Soon he was not remembered at all by any of his supporters, only the ones that booed him. As the Cycle of Life of life progesses, the athelete's old team begins to win a few games when they play each other. A new leader has emerged from the young group and is cheered by the fans. The Yankees begin to lose more often until they are just mediocre and it is no fun to watch a bunch of overpaid, pompus, unloyal players anyway. The athelete watches as his new management tries to make changes to get back to the winning ways. They are not experienced at losing and have no idea what to do. Their form of leadership has questionable values, why did he not see this initially? The athelete begins to lose faith in his once heralded leaders. They used to appear to be so brilliant and have all the answers. He even wanted his kids to play for this team. The cycle of life progresses and the athelete watches as his old team with proven values wins, and wins. The young players become fine leaders and atheletes. He wishes he had not left his team, especially not just for money. No one really cares about him much anymore. He gets fat and his bow ties do not fit. All the real fans remember is how he left the team just when they needed him the most. In their true time of need, after they gave him so much. And so the Cycle of Life continues.



"I am Selling Swiss Francs" -- DRT, Noname Trader, December 2005

I think Jim Rogers and all the other pundits are wrong. I am selling the Swiss Franc and buying dollars and have been since November 23, 2007. Since I doubt that CNBC or Bloomberg will invite me to discuss my reasons, or the Financial Times will publish me -- I thought I would start a thread here on Forex Factory to make the owners famous for publishing the correct call.

I am a contrarian by nature. I have been seeing a Long Term cyclical change in the relation of many currencies to the US Dollar. In 2006, I positioned in my long term accounts for a revival in dollar value. It did not happen and I lost a lot of money last year on these plays. The Yankees beat me every single game. The herd was right, the dollar kept going and going and going South. If you were to ask me explain why I am bullish on the dollar, I could tell you but it would not make sense. It has to do with a study of cycles that is unique to my macro view on the movement of currencies. I will say that I believe great wealth will come to those who begin to accumulate dollars and the best place to buy them may be against the Swiss Franc. You could certainly buy them most anywhere, but I am buying most of them here because lots of folks are selling them.

I do not trade on fundamentals or technical indicators, rather I believe that my view of cycles (in the case an up cycle) implies that a major fundamental change is approaching. I do not know what the fundamental change will be and really don't care.

http://www.morrisfunds.com/storage/f...wissy%20LT.PNG

My view is that the long term down which began in 1971 on the chart above ended in October of 2005. Since that time price has actually continued to move down and on November 23, 2006 a new [current] historical low was put in. I believe we are set to "Cycle Up" and the total cycle will last until Saturday, September 2, 2017. Basically a 10 year cycle up.

I am not going to elaborate further on this, I is voodoo to many and is really not that interesting to most. If you boil things down, the near term cyclical low of November 23 needs to hold. Not that a move below here would completely change my mind, but it would definitely make me weary of my forecast and any sustained building of value below here for a few months would mean I am definitely off on this view. Looking up, the previous cycle high in 2000 needs to be taken out and we need to build value above 1.8300 in order to move up.

In any case my call is a major move up in 2008 in this pair.

The Swiss Franc (USD/CHF) How I will trade it in 2008?

Long Term - LONGS

It is hard to trade cycle bottoms and tops. Almost impossible unless you are spot on the call. Even once you are moving in the right direction, you need a steadfast resolve to stay in as your profits decrease on corrections. A tough way to trade for most of us and not a good idea for most new traders with limited capital. Just for the Jim Rogers types. I have been buying down in the general low area since November 23, 2007 and am holding a good size postion that I will be adding to on the long side iff I get lucky, I will hold these longs for a "Long" time and leave money to worthy causes when I die. I trade these trades in my tax-qualified retirement accounts mostly

Intermediate Term - Longs and Shorts with a Long Bias

I will post a Swiss Francstrategy that I trade based on shorter term cycles of human behavior patterns. The average time in the market for these trades is approximately 37 days. And I am in the market about 87% of the time both long and short. When my long term view is up, I will still take shorts but I scale these trades down usually or pass on the cycle.

Short Term Trading - Daily Long and Short Positions

I use a method I call River Theory which is based on Price Distribution and the value curve. I have described it here in the past and will not go into the logic in this thread, rather I will just post my levels as often as I can and will put up a few charts to help with any discussion that evolves. The reason I will not get into my River Theory methodology in detail is that I just do not have time to keep up with it in a forum. I have used it to trade several markets, but here I will only discuss the Swiss Franc. I have tried to do more and it is just too much for me. It is my hope that many of you may gleen some ideas from it and that somehow it will help you with your own trading.

Good luck to all of you in 2008. I hope this helps you discover the Swiss Franc if you have never looked at this pair. Trading is the greatest profession in the world. It is the only thing I have done in life where I can lose money and still be happy.

DRT

My pov of view is that in the past Swissy used to do very well when there was distress in the markets or financial tension.

In the last month or two that has moved and now JPY seems to be the currency to flee to in times of trouble.

I d rather go long Yen if you think the financial meltdown will contiue - Swissy will do good but I would'nt long it - Too much carry overnight and it does not move wide enough like JPY.

Just my 2cents

Well, Mr. Rogers' logic is that many traders shorted CHF in order to put on carry trades, an therefore CHF will rise when carry traes are unwound. If he put on a long CHF position before august 17 2007 he must have been very happy with the results. Same goes for JPY, another currency he recently said he is long.

Ditto for CHF doing well in times of distress; i read one big hedge fund manager saying he will buy CHF in times of risk aversion because "everyone who has dirty secrets" stores them away in switzerland.

I also recently read the head of SNB saying theyre looking to raise interest rates as the economy has been doing quite well. With an unanimous outlook of falling US rates for 2008, im not sure this is yet the right environment to go long usdchf..

I am not going to spend any time on the long term trade, only to say that I am accumulating longs aggresssively. I bought aggressively at the lows, mainly becuase my views were confirmed with price action on November 23, 2007. My cycle calculations indicate this is the bottom based on many factors dating back to 1971 and most recently the October 2000 cycle high which was the first push to end the cyclical down trend. I focus on time, not price in these studies and the day of November 23, 2006 is extremely significant in my forecasting. I am not say this is "the day". I am only saying that to me, this day was forecast ahead of time, a historical low was made and price action out of this area confirmed my view.

To me these types of opportunities are life changing. They challenge me and fullfill a need I have to solve puzzles in the human emotional cycle. If I am correct it will be the accomplishment of a lifelong goal for me.

I am aggressive on these opportunities and front end load the trades aggressively. It has occurred for me only one other time in a different market. On December 21, 2007 a reversal occurred that is apparently continuing the downtrend so things are getting interesting. I again bought heavily on Sunday, 12/30 and Monday, 12/31/2007 New Years Eve Day. Most of the trades were filled between 1.1231 and 1.1275. If the low is taken out, I will lose heavily and likely stand aside. I may start again, if so I will let you know.

In summary, I am heavily long out of the bottom. My exit date on these and other longs taken on this position is currently Septmember 2, 2017. I do see a possiblility that the first cycle up may only last 5-7 years, but until I have more evidence I am staying with the 2017 date.

If I am wrong completely, we will keep trading the Swiss Franc on an Intermediate and Short Term basis. Refer to the chart above.

On December 13, 2007 I entered long at 1.1409. This is an intermediate trade which if successful will hold long until at least another 20 days or so. If price continues to move against me an exit will generated down near the lows at the present time. I will continue to update. I added to this position on the open on Sunday night December 30 as well.

Avg hold time for these trades is 37 days.

http://www.morrisfunds.com/storage/f...0Trade%201.PNG

I believe Mr. Rogers is an investor, not a trader. He does not hold short term positions according to him. So if he is buying SF then it is for a longer haul. I believe betting on carry trade unwinding as a strategy is a fools game. I remember on my 20th wedding anniversary in 2003 everyone was yelling, short the DOW, short the DOW it can't keep going up. I wonder if those shorts have been stopped out yet.

I think everyone is in for a surprise if they think the FED is going to keep dropping interest rates. If you use the old common sense approach, it doesn't make sense. Rates will hold in my opinion and once everyone realizes that inflation in the US is really closer to 10% instead of 2%, then the Fed will be raising. My groceries and gas make up a huge percentage of my family's budget, our energy and grocery bill is 30%-40% more it used to be and no matter what the government reports say, inflation is going up. Rates will rise in the US and the dollar right along with it.

This is interesting. Although I dont trade USDCHF actively, it is on my closely watched list to help me trade the euro. Anyway, I will be following the thread, though I'm not sure if I'll still be hanging around in 2017, lol.

Based on my calculations on the current USDCHF working curve, the upside objective of this pair is around 1.3315. This assumes we hold the current levels and move up. There will be many ups and downs throughout, but I currently have a long bias.

Looks like I am a fool to sell Swiss Francs. Well to be fair, I am a fool much of the time.



Forex Capital Markets

USD/CHF 2008 Outlook
Monday December 31, 2007, 4:10 pm


The Swiss Franc Rallied Against the U.S. dollar in 2007, but Will it Continue to Appreciate in 2008?

In the last quarter of 2007, the Swiss franc staged an impressive rally against the U.S. dollar on evidence that the interest rate differential between Switzerland and the United States was becoming too small to compensate investors for assuming risks on the increasingly volatile U.S. financial markets. More specifically, from October 1st to the middle of December, the U.S. dollar fell nearly three percent against the Swiss franc, trading from a high of 1.1894 reached on October 9th to a low of 1.0885 on November 23rd. In fact, while the Swiss National Bank remained concerned that inflation could accelerate after the economy expanded at the fastest pace in the last decade; the U.S. Federal Reserve was forced to cut its benchmark interest rate by 100 bps to 4.25 percent to prevent the U.S. economy from sliding into recession. Furthermore, problems in the world credit markets, triggered by a wave of payment defaults in the U.S. subprime sector, forcing many investors to cut holdings of the carry trade. This hyper volatility brought by the collapse in the U.S. subprime market helped the Swiss franc gain 3.94 percent against the Australian dollar, 3.03 percent against the British pound and nearly 5 percent against the Canadian dollar in just ten weeks.

Switzerland is Headed for its Fourth Straight Year of Above Trend Growth

Despite the recent turmoil in the world’s financial markets, which is threatening to end the longest streak of global economic growth, Switzerland seems headed for its fourth straight year of above trend growth, boosted by strong exports, consumer spending and strong investment in equipment and workers’ productivity. According to the Swiss National Bank, the Swiss economy remains in a “very good shape”, domestic demand is robust and growth in employment has been broad based. Moreover, Switzerland’s central bank projected growth in real gross domestic product at more than 2.5 percent for 2007 and expected Swiss GDP growth to settle at around 2 percent in 2008. However, although the Swiss economy has been relatively immune to the turmoil in global capital markets, the slowdown in global growth crated a degree of caution in the country’s monetary policy. In fact, for the first time in two years, the SNB decided to leave the target range for the three-month Libor rate unchanged at 2.25–3.25%, arguing that the expected slowdown of the global economy was likely to result in an improved inflation outlook for 2008 and 2009. Assuming that the three-month Libor remains unchanged at 2.75%, the SNB now expects an average annual inflation rate of 0.7% in 2007, 1.7% in 2008 and 1.5% in 2009. Back in September the SNB was more hawkish and expected an average annual inflation rate of 0.6% in 2007, 1.5% in 2008, and 1.8% in 2009. Yet, in our view, even though inflation prospects have become less certain due to the international credit crisis, risks for price stability remain on the upside. The low level of the Swiss franc against the euro, the continued high price of oil and the high degree of resource utilization are all important factors having an inflationary effect in the Swiss economy and are likely to pressure the SNB to increase the price of money during 2008.

Is the Swiss franc Still a Safe Haven Currency?

At the beginning of August 2007, the U.S. subprime mortgage crisis spread like a shock wave across the world money markets demonstrating the tight integration of international financial markets. Yet, although the extent of damage done by the wave of payment defaults in the subprime sector of the U.S. economy has never been anticipated by the SNB, the Swiss central bank reacted rapidly to the tensions in the Swiss franc money market and was one of the first central bank to provide additional liquidity on August 9, 2007. But is the Swiss franc still a safe haven currency? Yes and no. Although Switzerland continues to retain its status as the safe haven destination for the world's capital in times of geopolitical stress, the country's currency is no longer highly correlated with other safe haven assets. At one time, the currency was 40 percent backed by precious metals, but in 2005 the Swiss government sold the nation's vast inventory of gold. As a result, the franc did not benefit from gold's spectacular rise above the $855 level traded in November 2007. However, the recent increase in market participants’ perception of risk is fueling a flight to safety that in turn could lead to an abrupt unwinding of carry trades boosting safe haven and lower yielding currencies like the Swiss franc and the Japanese yen.

EUR/CHF Becoming Overvalued

Over the last five years, the Swiss economy has been benefiting from a favorable exchange rate with the Euro area. In fact, from January 2002 to December 2007, the Swiss franc lost nearly 17 percent against the euro, trading from a low of 1.4437 reached on July 2002 to a high of 1.6826 this October. Looking back, such a sharp appreciation of the euro against the franc can be easily attributed to the divergence between the monetary policies of both regions since the European Central Bank has been clearly more hawkish than the SNB on its interest rate hikes. However, as the slowdown in the euro area economy becomes more evident, the ECB is becoming less supportive of a strong euro, this could be a new state of affairs that will force many Swiss companies to look beyond exchange rates to make Swiss goods more competitive abroad. According to the latest SNB statistics on external trade, 60 percent of Swiss exports go to the euro area, 15 percent to the United States and only 10 percent of Swiss exports go to various Asian countries. In addition, the Swiss National Bank is also not interested in having a weak currency since the Swiss economy becomes more vulnerable to a surge in international energy and commodity prices.

Key Points

Understanding the Swiss National Bank monetary policy is a crucial step if one wants to anticipate how the Swiss franc will perform in 2008. While the SNB conducts the country’s monetary policy as an independent central bank and its primary goal is to ensure price stability, the central bank also needs to promote the best environment for economic growth. In our view, despite the recent turmoil in the world financial system, the SNB is likely to continue normalizing its key interest rate in order to guarantee price stability. According to interest rate futures for deposits denominated in Swiss francs, traders are clearly pricing two more rate hikes in 2008. While the overnight interest rate pays 2.6 percent, the 3 month rate pays 2.78 percent, the 1 year Libor rate 2.96 percent and the 10 year note pays more than 3.32 percent. If those rate hikes do happen, the additional monetary tightening should provide further support to the Swiss franc and make the Swiss currency less attractive as a funding currency for carry trades. Furthermore, confidence among financial market participants in the global financial system remains scarce and this could have a positive effect in the market valuation of the Swiss franc. In fact, assuming risk aversion will continue to be the predominant theme across financial markets in 2008, investor’s appetite for high yield and high risk assets is not likely to return, a market environment that could favor a further unwind of carry trades and benefit lower yielding currencies like the Swiss franc. Looking ahead, we target the USD/CHF at 1.1000 in three months and we expect the Swiss franc to reach parity with the U.S. dollar before the end of 2008.


http://www.dailyfx.com/export/sites/...CHF1.12_31.gif
USD/CHF Technical Outlook: New Low Expected Before Any Significant Rise – By Jamie Saettele

Last quarter, we wrote to “expect a drop below 1.1623 to complete the terminal thrust from the triangle. A rally should then unfold and bring price back to at least the center of the triangle near 1.2200 although bullish longer term bullish potential is much greater.” We were obviously off on the USDCHF call as the pair fell to multi decade lows (1.0886) before staging a rally back to 1.1594. The count is similar to the EURUSD (inverse of course though). The recent rally (1.1594) completed wave 4 within the decline from 1.2468. As such, a new low is expected in wave 5 (below 1.0886) before we can expect any kind of significant rally. An objective is 1.0616 (61.8% extension of wave 1 through 3).



http://www.dailyfx.com/export/sites/...CHF2.12_31.gif

Source:Antonio Sousa, Quantitative Strategies Analyst strategist@da

Enter Long @ 1.1206 or better. Target is 1.1336. Risk should be according to your own tolerance levels

http://www.morrisfunds.com/storage/f...c/2008-1-3.PNG

DRT good to hear from you.
Talk about research and homework, I thought trading is suppose to get easier, I guess the grind never stops even as an accomplished trader as yourself, more power to ya.
I like the Idea of a longer term trade. I suppose given the amount of time within the cycle one should consider at the minimum 400 or so pip range to allow the trade to work itself out if not its all yours to reacess a entry point.
1st orders-L-usdchf @ 1.1059
limit order @ 1.0898 Novembers low area.