Global currency watch
above 83.75 (which declines by about ¼ Yen per month based on current chart patterns) as a very positive Dollar signal and will continue to expect and watch for this phenomenon. Once es t ab l ishe d , we
see the
potential for n e a r-t e r m sig n ific a n t r etrac ement s in the Yen’s fortune to 88, 93, 101 and 110 to the Dollar.
The market has become so ac cu s t o me d to incessant Yen strength that
the
short sellers have either a pp ar e n t l y given up or are now waiting for a technical breakout; in fact selling Yen in the face of this factor has in some trading circles been described strateg y.
as a ‘widow-maker’
Because of the associated trading mindset, and in some cases heavy trading losses, the ability to grasp a fundamental shift in market psychology and positioning has become naturally more difficult,
The Yen may no longer be the immediate ‘safe haven’ for fast money that it has deemed to be by many since the 2008 crisis.
views of a weaker Yen vs. using rolling spot or forward outright exposure.
Should it transpire, a move of
the magnitude discussed from the low 80s to around 100 or so consequently seems to many like a large move - but we think that it’s only relative; a rise from 83.75 to 100 is only about 20
not only this but the appetite for such strategies has also declined. Duly, we note anecdotal evidence of an increased preference for option strategies over traditional methods
of expressing such
FX
percent, something very similar in magnitude and direction to that undergone by the Swiss Franc, which has fallen against the Euro by almost 20 percent since its flirtation with parity at the end of 2011 to its new floor of 1.20 CHF per EUR.
We still believe that the market may challenge the 1.20 EUR/ CHF line in the
sand a at
some point and, if our belief of
lower
E U R/U S D is sustained, we would therefore see the Swiss Franc rise above parity to the USD from its present level of around 0.90 to perhaps 1.10
CHF per USD, a more acceptable and understandable rate to many FX veterans.
The question from many of our sources continues to arise, in order to defend the floor of the rate, how are the Swiss able to buy Euros in perpetuity at a given minimum fix, especially with (arguably) declining Swiss
FX TRADER MAGAZINE April - June 2012 15
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