World Currency Watch: FOREX Market, FOREX Trading BLOG

You Can’t Pay Me Enough to Trade This Cross…

In currencies, you can buy a pair just as easily as you can short a pair. …and usually I’ll have an opinion on which way I’d rather trade a pair.

I’ll buy if I’m bullish on a particular currency pair, and think it’s heading higher OR I’ll short it if I believe the pair is heading lower. That’s why I’m open to buying or shorting most Forex pairs either way.

But just because I look at all the 60 tradable pairs worldwide for opportunities, does NOT mean that I’m willing to trade all of them.

You can’t find a better example of that than the GBP/CHF (pound/Swiss franc). As far as I’m concerned, it’s the absolute worst currency cross in the market. It’s one of the few currency crosses that’s not worth either buying or selling right now…

Two Weak Currencies, One Horrible Currency Cross

What you have here is a classic example of pairing a weak currency with another equally weak currency, so we have a weak/weak-trading scenario.

The Swiss National Bank has already demonstrated they’re willing to intervene periodically to keep the Swiss franc’s value low.

Meanwhile, the British pound can’t do one thing right. Check out the chart below.

The Dollar Falls and the Pound Falls Even Harder!

Why the Dollar Can Fall & So Can the Pound!

Right now, the British pound is one of the few financial instruments in the world falling at an even faster rate than the dollar.

That’s why the GBP/USD pair is dropping on the chart even in spite of a falling buck that has been pushing up nearly every other currency.

In other words, you can’t find a much weaker currency than the British pound. Usually, I’d be willing to short the pound in a currency cross at times like these, but there’s an extra dilemma at work here.

As I mentioned, the Swiss National Bank has already been intervening in the currency market earlier this year to artificially manipulate the Swiss franc’s value. They’ve been selling francs and buying up euros mainly, but also some dollars and some pounds to push down the franc’s value, according to the central bank website.

So what happens if the Swiss National Bank wants to weaken the Swiss franc again and decide to buy even more pounds (GBP) this time? It would boost up the GBP/CHF pair.

That’s my problem with shorting the pair right now. You run the risk of central bank intervention and being on the wrong side of that intervention. Check out the GBP/CHF chart below.

If the Swiss National Bank Intervenes, You’ll Don’t Want to Hold the GBP/CHF

When in Doubt…Pass it Up, and Move on to Another Pair!

You never want to trade weak/weak scenarios like this, or strong/strong scenarios for that matter. They’ll range-trade indefinitely and won’t earn a pip in profits.

But in this case, there’s an extra fundamental risk in shorting this pair. Even though the GBP/CHF is in a downtrend, the lower it goes…the more likely the Swiss National Bank is to intervene and take the pair higher.

Yet I still don’t want to buy it either because I’d be buying a fundamentally weak currency when I could buy something stronger out there. In fact, almost any other choice would be a stronger buy candidate than the pound right now!

Therein lies the “catch 22” in owning the GBP/CHF currency cross pair right now. That’s why I wouldn’t touch it with a 10-foot pole.

Instead, I’d rather be long EUR/CHF on huge dips down because at least that way I might have the central bank on my side…and euro has been much stronger than pound…we only have to look so far as the EUR/GBP pair to see that.

Happy Trading,
Sean Hyman, aka Professor FX

EDITOR’S NOTE: This is the type of in-depth analysis Sean gives on every single currency cross (non-dollar) currency pair in his service, Currency Cross Trader. Every week, he emails his subscribers timely alerts to recommend which currency pairs to buy, sell and hold for maximum profits in the Forex market. For now, this service is only available to our FX Elite members. But I’ll keep you posted here in FX University if it becomes available again.

The Swiss Cried Uncle Again

(Anyone Paying Attention Made a Killing!)

By Sean Hyman On Tuesday, I told you that I believed the Swiss would soon intervene in their currency once again.

Well, lo and behold, it happened the very next day. And the EUR/CHF (euro/Swiss franc) soared just as I said it would.

As a Forex trader, I had my entry order in for the EUR/CHF already on Tuesday. (For those of you who are new to Forex, an entry order is a special type of trade that instructs your FX dealer to only buy or sell a currency pair if it reaches a specific level. It ONLY lets you “enter” a trade at the price level you want, hence the name “entry order.” If the currency pair never reaches that level, then you don’t get filled on that trade.)

In short, I was ready to go whenever the Swiss National Bank decided to intervene. I woke up the next morning and I was filled on the order and was up over 260 pips! That’s huge for a pair that typically moves about 80 pips in any given 24-hour period!

Check out what the intervention looks like on the 5-minute chart below.

The Swiss Completely Obliterate the Short-Sellers!

You can see why it’s important even for technical traders to pay attention to the central bank comments. When central bankers speak, they’re usually not bluffing – especially central bankers outside the U.S.

Central bankers around the world will usually send out some warning signals to the markets before they act. For instance, they can express their disgust for where the currency is, like the Swiss did. And if Forex traders don’t pay attention, Central Bankers will soon put them in the “House of Pain.”

In this case, anyone short-selling the EUR/CHF got killed this week! They lost 260 pips overnight. That’s huge!

Of course, I was long the EUR/CHF because I anticipated the intervention. So I’m loving the Swiss National Bank this week!

Okay, let’s talk about what’s coming next. It appears that the Swiss have successfully reversed the downtrend in the EUR/CHF pair. This will cause them to gain support from the big hedge funds and their “trend following systems.” That’s one reason why the Swiss sold francs furiously yesterday, to ensure they got above the downtrend line on the daily, 1-year chart.

This is a monumental moment for the Swiss! Now, if this trend reversal sticks…it will bode much better for their economy going forward.

Until next time….

Have a great weekend!
Sean Hyman, aka Professor FX

P.S. One of your fellow FX University readers wrote me today to say she made a 300-pip profit on my EUR/CHF recommendation. That’s great! Congrats! If anyone else has comments or questions for me, you can email me at info@worldcurencywatch.com.

Related articles:

Swiss Cry “Uncle!”

An Act of Desperation for the Swiss

How to Choose a Profit Target for Your Next Forex Trade

“Is Switzerland Really the Next Iceland?”

By Chuck Butler, Editor
www.worldcurrencywatch.com

I must say I love all my inquisitive readers. It truly is a pleasure to write to so many opinionated “armchair economists” like myself.

Perhaps it’s these insane markets or perhaps it’s just my winning personality, but lately I’ve been getting even more questions than usual.

I’m getting questions from all over – some from my Currency Capitalist members (including a few questions I actually answered in your most recent March issue), some questions from you dear FX University readers and even a few random ones from my fellow colleagues.

And since I’m down in South Florida this week, kicking back and taking a much-needed vacation, I want to share my answers for some of the most interesting questions with you.

So please check back all this week as we turn to your questions for the day.

1. I read somewhere that Switzerland could be the next Iceland. What’s your take on that? -J.C.

I doubt Switzerland could be the next Iceland, I think it would first be Ireland. The Swiss have banking problems, but they'll deal with it and get through it.

2. Is the reminbi the same as the yuan? – S.T.

When we first began offering the Chinese yuan, I was confused about the yuan / renminbi. I called a customer of ours that is Chinese. I asked her the difference. What she told me, and what we've told customers since 2002, is that renminbi is the official name of the currency, and the yuan is the slang name. (Sort of like the buck is the slang for dollar)

That’s it for today! I’ll be back tomorrow with more questions from your fellow readers. Till then, have a Marvelous Monday!

The Next “Crisis Savvy” Currency to Own Through this Market Massacre

By Chuck Butler

Hidden conspiracies, liquidity-starved central banks, another bailout for Fannie Mae, and now even American Express wants a piece of that US$700 billion bailout (hence their new “banking” status)…

Shoot, I know I’m ready for a little good news. How about you?

Well, that’s the nice thing about trading currencies. There’s always a profit story hiding somewhere, even in a disastrous market like this. Yesterday, I gave you the low-down on one my favorite currencies to own ahead of the market recovery: The Norwegian krone.

Today, I want to tell you about another currency that’s in a solid position to profit from this market crisis: The Swiss franc.

The Swiss economy has been stealth-like in its ability to grow even in the face of a global recession, albeit slow growth is better than no growth! And with the Swiss National Bank lowering interest rates in the coordinated round of global rate cuts, stronger growth should be restored in 2009.

Switzerland has always been perceived as a "safe haven currency" in times of geo-political difficulties, and tensions. With all the geo-political problems in the world today, I have to believe the Swiss franc will be an excellent investment choice going forward.

Once the U.S. led credit squeeze is unlocked, fundamentals will return to the markets' focus, and Swiss franc should be ready to move forward.

With inflation running higher than the Swiss National Bank's ceiling of 2%, at 3.1%, it’s easy to see they’re involved in the global effort to unlock the credit markets. Therefore, once the credit markets return to normal, interest rates will rise once again, look for the Swiss franc to jump back to the head of the class.

The current "tug of war" in the currency market

The "tug of war" has just been won with the British pound giving in to the stronger Swiss franc. Check out the chart below. Click on the image to enlarge it.

One battle that is yet to be decided is the one between the Euro and the Aussie dollar. Both have gone up and hit new highs against the dollar lately. Both EUR/USD and AUD/USD have gone up at about the same pace which has kept the EUR/AUD pair in an ever tightening range. Check it out below.

One thing is for sure, these break as the tug of war gets tighter and tighter. It won't be long before one of them "throws in the towel". When it does....there will be a sizable move as volatility increases in the direction of the new trend.

It would be my estimation that this should take place within days. However, the market will ultimately decide it. Just keep your eyes on these two pairs.

Pounds are already weakening against stronger Swiss fundamentals. GBP/JPY is also following its lead (downward) on yen strength as well.

So the low yielders are finally getting some more "revenge" on the "high yielders".

On the EUR/AUD pair, the technicals seem to indicate that the Euro will gain strength in the near term against the Aussie. However, in the long run, the Aussie has higher inflation and more buying from China which is keeping their labor market superior to that of Europe.

In my Money Trader service (www.money-trader.com), we just took profits from being long EUR/AUD. That was our final trade for the month.

So since mid October, all months have been profitable except for January which had a mild loss. November and December's gains were in the triple digits.

So we've really fared well. Check it out when you get a chance. I think you'll like it.

Sean Hyman
Editor/Trader
www.money-trader.com

The current "tug of war" in the currency market

The "tug of war" has just been won with the British pound giving in to the stronger Swiss franc. Check out the chart below. Click on the image to enlarge it.

One battle that is yet to be decided is the one between the Euro and the Aussie dollar. Both have gone up and hit new highs against the dollar lately. Both EUR/USD and AUD/USD have gone up at about the same pace which has kept the EUR/AUD pair in an ever tightening range. Check it out below.

One thing is for sure, these break as the tug of war gets tighter and tighter. It won't be long before one of them "throws in the towel". When it does....there will be a sizable move as volatility increases in the direction of the new trend.

It would be my estimation that this should take place within days. However, the market will ultimately decide it. Just keep your eyes on these two pairs.

Pounds are already weakening against stronger Swiss fundamentals. GBP/JPY is also following its lead (downward) on yen strength as well.

So the low yielders are finally getting some more "revenge" on the "high yielders".

On the EUR/AUD pair, the technicals seem to indicate that the Euro will gain strength in the near term against the Aussie. However, in the long run, the Aussie has higher inflation and more buying from China which is keeping their labor market superior to that of Europe.

In my Money Trader service (www.money-trader.com), we just took profits from being long EUR/AUD. That was our final trade for the month.

So since mid October, all months have been profitable except for January which had a mild loss. November and December's gains were in the triple digits.

So we've really fared well. Check it out when you get a chance. I think you'll like it.

Sean Hyman
Editor/Trader
www.money-trader.com

CHF/JPY coils up into a symmetrical triangle; Ready for a breakout!

CHF/JPY is coiling up into an ever tightening triangle position. This pattern that gets less volatile as it goes towards the tip of the pattern will burst out into a highly volatile move to one side of the tip of the triangle shortly. When it does, it could easily move 200-250 pips from the point of breakout over the upcoming days.

It will likely break out in the next few trading days.

CHF and JPY both have profited greatly over the recent risk aversion in the market. However, they are like two runners that are neck and neck in the race right now. Shortly we'll see which one wins this round.

Fron this one could directly trade this pair OR it can tell them whether to trade EUR/CHF or EUR/JPY.....or USD/CHF or USD/JPY. If you were a buyer of a pair, you'd want the weaker of those two (CHF or JPY). If you were a seller (selling short) of the pair, then you'd want the strongest one of them to trade against the one you shorted. So you can see there are many benefits to directly comparing currency pairs to each other. It helps you to know which one has the best odds of success and which one may reap the most in number of pips.

See the CHF/JPY daily chart's triangle pattern below. Click to enlarge.

Sean Hyman
Currency Director, The Sovereign Society
Editor/Trader, www.money-trader.com

EUR/USD and USD/CHF broke out of their formations!

EUR/USD broke to the downside but firstly USD/CHF happened to break to the upside.

The dollar is headed higher in the near term out of this pattern. Also watch USD/CAD to see if it can reclaim 1.00 and sustain it. That one should be interesting to watch also.

Just wanted to give you guys a quick update. Man that was fast! I knew EUR/USD and USD/CHF were very near their breakout points due to them being coiled so tightly into the tip of their wedge and triangle patterns. They can only coil so much before they break...and the break is usually hard. Check out your 1 hour charts to see what I mean.