As always, payrolls are a pivotal point in many markets and various price behaviours can be analysed. Today we look at the relentless rise in the Swiss franc as a continued safe haven currency. The downtrend against the dollar began way back in June last year, and last week saw a fresh acceleration as more evidence of a US slowdown became evident. Market chatter perceives there to be no end in sight in the currency’s rise as the relative strength of the Swiss economy adds extra pressure. Any future rises in interest rates are perceived to be too small to shift sentiment and central bank intervention (which has been used in the past) is a policy that is doomed to fail. The market talks about parity to the euro (current price 1.2200), but I remember exactly the same being said about the eurodollar rate when Greece was its height of uncertainty. The currency pair then rallied 20%. Overwhelming sentiment, whichever way it is leaning, is always dangerous, as all the participants with that perception are usually simply reflecting positions they already have. In effect there is no one left to participate further.
There are various technical signals in the Swiss franc against many currencies that highlight a multitude of risks to those who think the trend will continue. My view is that at some point a currency becomes so strong that the reason for buying that currency as a safe haven actually becomes nonsensical due to the paucity of that currency you receive. When the interest received is also negligible, or even negative, this simply amplifies the folly in parking funds there. While the reasons for external funds to move into a currency become untenable, it should also be remembered the pain an extremely strong currency creates for companies wishing to compete in the world market. For example, Swatch announced last week that this is costing them SF60m per month.
No trend can last forever and the current rise is now reaching its one-year anniversary. From a technical prospective this has significance for those participants who use cycles to analyse, such as Gann theorists. I have my own analysis on cycles that are far shorter, but there is a confluence of long-term and medium-term numbers stretching back a year and to the January high that urge caution. On my measurement of oversold, the half day chart has reached that point and the daily is close to reaching a historical extreme as well. While for many, the outlook for the Swiss franc is not high on the list of priorities, it would be unwise to underestimate what a major shift in sentiment on the perception of risk can mean elsewhere. It look increasingly likely that the Swiss franc cross rates against the major currencies can be a primary driver of the relative movement of those dollar rates as well.
When it comes to the relationship between Europe and Britain – uniformity isn’t a word that currently springs to mind. And that’s not just a reference to Brexit. Whilst the Europe and Britain do find themselves in the midst of a political break-up – their monetary policies are also showing signs of divergence.
As anticipated, US organisations exited prime money market funds en masse following last year’s SEC reforms. AFP’s latest Liquidity Survey indicates what it will take to encourage them back.
A shortage of trained staff and a forecast declining labour market mean that radical reform will be needed to retain investors’ interest in the country, a report suggests.
Nine months on from the US tightening up regulation of money market funds (MMFs), organisations show little appetite for investing in prime money funds reports the Association for Financial Professionals.