One of the markets that we tend to watch a lot at The Trader Guy is the CHF/JPY pair. While not necessarily the sexiest market to trade, it gives us a good look at risk appetite, but not in the way you normally look at it. After all, both the Franc and the Yen are considered to be ‘safety currencies’, but seeing one outperform another one tells us a lot about the flow of money in the macro sense.
The fact that the Franc continues to fall against the Yen tells us that money is still leaving Europe, and that although the Franc itself has been fairly strong overall, the reality is that traders are still much more comfortable in the Asian theater than anywhere near the Europeans. Yes, the Swiss have their own currency, but are very reliant on the EU for trade. In fact, it is something like 85% of Swiss exports are sent to European Union members. And if your customers are broke – your sales will slow down.
Franc continues to fall against the Yen for another very important reason…
The Swiss losing ground to the Japanese also suggests that people could be paying back loans that are denominated in Yen. While us mere mortals don’t think in these terms, you have to understand that a lot of investment around the world is done in Yen, as the interest rates are so attractive. However, the Swiss are also doing this to themselves as well, as they are offering horrific interest on deposits. People are paying for their money to be in Swiss banks at this point in time. Not exactly the investment environment traders appreciate.
The market broke below the 105 level during the Tuesday session, and looks set to reach towards the 101 level again. The 100-day Exponential Moving Average is hugging the downtrend line that has been pushing the market lower for some time now, and just shows how poor the technical analysis looks in this pair. This has been a nice, gentle, and steady downtrend, so we believe there is still more than enough momentum to continue lower. We like selling short-term rallies, and of course breakdowns below the bottom of the daily range. With this, we remain sellers only.
