EUR/CHF Archives - Out of WACC

Update on MSFT: I’m still watching MSFT (Microsoft stock ticker) for good entry. I will go long on it in the future at a good entry price. Microsoft stock and other blue chip stock fell after Intel slashed revenue outlook due to weak PC demand. The decrease in the price of MSFT is still a good buying opportunity.

Microsoft (MSFT) - Hourly — Microsoft (MSFT) – Hourly

Last Wednesday, Reserve Bank of New Zealand left the Official Cash Rate unchanged at 3.5%. NZD (Kiwi) quickly reacted by rising as it disappointed traders who were looking for rate cut. In a statement by the Reserve Bank Governor Graeme Wheeler, cited that the New Zealand dollar “…remains unjustifiably high and unsustainable in terms of New Zealand’s long-term economic fundamentals.” I still believe that RBNZ will intervene and send NZD down, if not by rate-cut. I would be short on NZD/USD, at this time.

Upcoming: Bank of Japan (BoJ, Late Monday/early Tuesday – March 16/March 17 EST), Federal Reserve (Wednesday – March 18 – 2 P.M EST) and Swiss National Bank (SNB, Thursday – March 19 – 4:30 A.M EST).

BoJ will either hold or increase the stimulus package. If they do, JPY (Yen) will be bearish–sending USD/JPY further up–after rising to over 121.00 this week. If they don’t, we have to watch for their tone. It will be either bearish or bulling on the Yen, depending on what BoJ say, or react.

Federal Reserve will be watched very closely after a very positive non-farm payrolls last week. This week, U.S stocks were a roller coaster. There was a hard sell-off in equities and a bullish USD (U.S Dollar), due to an increasing chance of rate-hike. On Thursday (March 12, 2015), Retail Sales came out very negative. Retail Sales fell 0.6% (-0.6%), worse than expected of 0.3%, following -0.8%. Core Retail Sales (excluding automobiles which accounts for 20% of Retail Sales) fell 0.1% (-0.1%), worse than expected of 0.6%, following -1.1%. However, it was little better than previous report in February. I believe people who are saving money from low oil-prices are probably paying off their debts, before they spend on “wants”. The U.S market reacted positively because some people thought that negative Retail Sales would hold-off the Federal Reserve from raising the interest rates. On Wednesday, the Fed might also drop “patient”, signaling that rate-hike is very close.

S&P 500 (SPX) - Hourly — S&P 500 (SPX) – Hourly

SNB might set a new floor to the exchange rate (EUR/CHF). I would not trade CHF (Swiss Franc) because of two reasons. One, it’s too violent and there is no clear direction yet. Second, SNB does not know what it’s doing after what they did in January. But, I would still watch out closely, as it might affect other pairs, such as EUR and USD.

Last Thursday (January 15) around 4:30 a.m, SNB (Swiss National Bank) surprised everybody and woke the markets up by ending the minimum exchange rate of CHF 1.20 per euro and lowering interest rate to -0.75% from -0.25%. The announcement was unscheduled. It was shocking to everybody and there’s more come to the story.

After seconds of the announcement, CHF rode in fastest bull mode in the modern history. EUR/CHF went on free fall with no ground stop. SNB’s floor rate of 1.2000 for EUR/CHF was broken. A lot of people were long EUR/CHF with stops just below 1.2000. Not only the CHF pairs were effected, but also other pairs. Stops were triggered in seconds (or minutes) and panic spread like wildfire. Imagine a highway with all the automobiles driving more than 200mph and large truck in the middle suddenly stops in a second.

In September 2011, Swiss National Bank (SNB) called its currency (Swiss Franc) “Massive Overvaluation”. They wanted to weaken the Swiss Franc to improve their economy. Therefore, they set a floor rate of 1.2000 of EUR/CHF exchange rate. In a statement, they stated “The SNB will enforce this minimum rate with the utmost determination”. They were saying that they will do everything in their power not to allow the exchange rate break the floor rate. Their tone was still same in the late 2014. Ever since, they have been buying the foreign exchange in unlimited quantities, until last thursday (January 15, 2015).

After abandoning its currency, SNB stated that “Swiss franc is still high”. Well, it is even more higher now. Immediately after the announcement, CHF pairs sky-rocketed. EUR/CHF dropped from above 1.2000 to about 0.9705, over 2000 pips drop in one day. USD/CHF dropped from around 1.0200 to 0.8350, almost 2000 pips drop in one day. The reason for SNB’s action “divergences between the monetary policies of the major currency areas have in increased significantly”. They are referring to Euro, which has depreciated a lot against USD, which has caused Swiss franc to weaken. That’s why they say that defending floor rate “no longer justified”. At the end of their statement, they said “remain active in the foreign exchange market to influence monetary conditions”. That’s what scares me. After what they did, we need to be cautious and not trade CHF pairs at this time.

SNB’s action looks suspicion for two reasons. First, SNB announces this sudden change of plans just a week before ECB meeting. Second, it looks like that IMF (International Monetary Fund) was not kept in loop. I believe SNB is trying to buy time. The question is “For what?”. If they are trying to buy time, the move by SNB is only temporary (less 4 months).

2015-01-16-PROPHET — Comparison Chart – EUR/USD and USD/CHF

As to ECB, they have been decreasing the interest rates, which has caused Euro to decline a lot.. This week on Thursday (January 22, 2015), ECB will be releasing the results of their meeting. There has been a chatter (still is) that ECB will be announcing a full-blown Quantitative Easing (QE). At this time, I believe the interest rates will stay the same. Regarding to QE, I think QE will be announced, but limited. They might wait for Greek election results, which takes place on Sunday (January 25, 2015). Greece may exit Euro union and have their own currency. If they do, the currency will go down in value. I think full-blown QE will be announced in March 5.

Not only traders were effected, but also brokers such as FXCM. FXCM experienced significant losses ($225 million) and they may be in a breach of some regulatory capital requirements. When the news came out, their stock “FXCM” fell from around $12.50 to just below $1 (about 90% decline). In the morning of Friday, its stock was halt due to news pending. At 3:55, Dow Jones reported that Leucaidia National Corporation would be proving $300 million in cash to FXCM to continue normal operations. The agreement is in the form $300 million senior secured term loan with two-year maturity and an initial coupon of 10%. Immediately after the news, FXCM surged from around $1.50 to $4.50 (about 350% increase).

Tag: EUR/CHF

Update on Microsoft, RBNZ, and upcoming events to watch out.

SNB Shocks Global Markets