They are all pointing higher. CDS and bond spreads are going through the
roof. There are riots again. While it is not a new story, the fact that
Belgium is now going center stage in the EU mess is a very interesting
elevation of risk. Geographically speaking, we have reached the core.
For me, the best measure of stress has always been the EURCHF. That pair
is sending off alarms. We are just a tad above the all time low of
1.2770. I see no reason why a new low should not be set by the NY open.
The strong Swissie, weak Euro story has been with us for quite a while
now. This graph shows how far we have travelled on this cross.
It is easy to blame all of the weakness in the EURCHF on the ongoing circus in Disney
Euro Land. But I think there is more to the story. The recent meltdown
in the cross started on 11/3/2010, the day that QE-2 became a reality
(surprised?). I never have believed in coincidences, this time is no
exception.
As of the end of the third quarter the Swiss National Bank reported
reserves in Euros totaling 90.9b. If the year-end rate is the same as
today it translates into a three-month loss of CHF 5.5b (USD 5.6b). On a
population-adjusted basis this would be the equivalent of a $214b loss
in the US. On a GDP comparison this is equal to $160b. Can you imagine
if the Federal Reserve had a loss in three months of that magnitude? Ron
Paul would shut them down. This is a big deal for little Switzerland.
The problem that the market faces is that the year is not over.
Liquidity between now and year-end is going to get thinner and thinner.
Big risk taking and big FX books are not in the cards this holiday. That
being the case, some unanticipated things might occur.
Watch out for gaps in currency trading for a bit. If that starts to
happen and volatility jumps up it will spread to other markets. I think
markets have been “thin” across the board for some time. Equities are
just robots moving paper for the most part. The big jump in global bond
yields of late stinks a bit of liquidity issues. FX volume has been
heavy, but are there folks who are willing to take on big new risk if
money starts moving? I wouldn’t think so. If money decides it does have to make a move over the next few weeks, then it’s likely to have an out-sized impact.
Now I'm no euro bull by any stretch but anyone buying CHF here is not thinking clearly and needs to go take a good long look (or ok a very quick look) at the balance sheets of CS and UBS. Good luck with that...old habits die hard I guess.
According to my charts, the pair has reached the -50% Fibonacci level as measured from a top of February 28, 1993 to the plateau low of November 18, 2001.
The fifty percent level is almost always a very important level. If it does bounce off these lows, the move up could take your head off if you're short.
I have been waiting for the Swiss thing to take root, being that a lot of mortgages written to Eastern European borrowers and being held by Austrian banks (hence, the government...) were denominated in Swiss Francs. If that thing starts to crumble, it could really be a massive move indeed.
Thanks Orly,
Got a chart to point to?
Sure, any EURCHF Weekly chart that shows Fibonacci levels. Just trace the highs to the lows on the levels mentioned above: high of 1.8519 in February of 1993 and the plateau low of 1.4631 set around June of 2002*. Be sure to include "-50%" as one of the levels to display and you can see that the EURCHF has double-bottomed right along the negative fifty percent Fibolevel.
That's not to say that it won't go down from here. It only means that this level is very strong support for the pair.
*Note that the initial impulse to that level began in November 2001 and actually lasted until February of 2003. That's a long time.
"FX volume has been heavy, but are there folks who are willing to take on big new risk if money starts moving? I wouldn’t think so. If money decides it does have to make a move over the next few weeks, then it’s likely to have an out-sized impact."
I am not sure what you mean by this statement above.
The Euro and Gold seem to be moving lock step. I would think this would decouple as the Euro gets even lower (if it goes lower). Can we have Euro lower and Gold higher overall again in the next several weeks? Is someone big selling Gold to cover losses in Euro? I am not sure why these are moving together. Someone please explain...
I was thinking the same thing watching gold tank today. I think there was a pretty large liquidation of gold holdings to cover some "problems."
Wondering if we'll even make it to New Year's day without everything blowing up, the way things are going.
All FIAT tied to the hip of the global banking system. All falls down.
Look to Switzerland, the future of America, the empire crucified on its own currency.
Don't believe me, look to bonds in dollars, sold for dollars. Contrary to opinions, dollars are scarce. The more scarce they become, the more arrive in 'reserves' here and abroad. Much of the current bond sell- off is a crude oil- driven flight to cash dollar preference. It's gonna get a lot uglier. Wait until China and Japan start dumping Treasuries for cash.
Both Obama and Bernanke want a lower dollar; Bernanke, so as to operate his money laundry and swap finance's shit paper for good USA cash. Obama? He's a moron. Neither will get their wish.
Well Said, sir! +1
Quite correct. And don't forget that the system needs cash.
WSJ recently reported $100 note production up 44% YoY.
They also reported that huge swaths of those $100 notes need to be burned because of printing problems.
Tired of being SCREWED by the FEDERAL GOVERNMENT and LIED to by PRESIDENT OBAMA, BERNANKE, JAMIE DIMON and the other host of CRONIES??
Then Watch the YouTube Video “AMERICAN DREAM DEAD ~ DENIAL, THEN PANIC” at (http://www.youtube.com/watch?v=7PFqAoqrPOs)
Anonymous-
It’s time you STOPPED getting SCREWED by the BIG RED WHITE and BLUE !!
One thing is common with all hyperinflations, a shortage of the said currency.
Ben to the rescue.
Crucified on a cross of strong francs; punished for their reputation for fiscal responsibility; how utterly droll.
The bullish butterfly effect: If a butterfly flaps its wings in China the market will go up.
It could well be testing a bottom......., the 240 minute chart has a nice Bullish Butterfly..
Hopefully the URL will allow you to see tha chart.....(noobeeez are technically challenged)
http://3.bp.blogspot.com/_gK8_7e9-1pY/TQldQAvrQ8I/AAAAAAAAEjI/mGgO7Hw3aI...