04-24-2019: June Swiss Franc: Negative Interest Rates Concern Only Some Investors

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Introduction
Intermarket
Parabolic

Nirvana
News
Point & Figure
Cyclic/Seasonal

Internal Progrm
Third System
Margin

Historic Range
Commitment
Volatility

Random Chart
Options
Calendar Spread

Level Table
Other Factors
Recommendation

6     7

01     1

2     3

4     5


Introduction

Countries like Japan and Switzerland have both been experimenting with negative interest rates to weaken the value of their currencies and help increase exports. Would you put your savings into a place where you are charged interest to do so and see your account shrinking? The natural intuitive thinking has indeed resulted in a low deposit rate in Switzerland with more and moire "savers" preferring to keep their money in cash. It took some time, as financial manipulations such as carry trades favored buying Swiss Francs to some degree, but in the end, bank intervention and discouragement of currency appreciation worked well in countries that charge interest on savings to discourage investments in those currencies.

Having said that, our indicators suggest the Swiss Franc is more "reactive" than most analysts seem to be giving it credit for being. The negative interest has been effect for some time during which there has been several rebounds. This underscores the fact that there are several uses for Swiss Franc possession and trading other than just putting them into savings. The "carry trade" is one of them. This is a somewhat difficult strategy to understand used by professional traders and bankers. Our overall indicators just slightly favor a "buy" in a rare contradiction to "other factors" which show a strong down opinion below.


Intermarket Analysis

We fed the Swiss Franc, British Pound, and Euro Currency into a neural network to get the following result:




Parabolic Chart

June Swiss Franc:

Parabolic Chart


Nirvana Chart

June Swiss Franc:

Initial Chart


News Analysis

The Swiss downtrend remains the most prevalent trend within the currency markets. Until recently, it was second most down with the Euro leading downward. A little bit of U.S. Dollar strength still weighs heavily on the Swiss Franc. The Dollar continues to gain from favor for a safe-haven. This is even in the face of the Mueller Report release and resulting political firestorm, and possible soft U.S. housing data. The Swiss National Bank remains committed to its ultra-loose money path to guard against fallout from the "highly valued" Swiss Franc. the SNB said it now expects a 2019 inflation rate of 0.3% and 0.6% in 2020. In its first forecast for 2021, it expected Swiss inflation to rn at 1.2%. After stagnation in 2018, the SNB expected the Swiss economoy to grow by 1.5% this year. The Swiss Government disagreed cutting its forecast for 2019 growth to 1.1%, citing a weaker world economy that will weigh on exports and investment.

The SNB considers the situation for the Franc in the foreign exchange market to be "fragile." The bank has kept fixed a negative interest rate of 0.75% it charges on deposits, and sait it remains ready to intervene in the currency markets if necessary to restrain the safe-haven Swiss Franc which gained overall in previous months before a recent drop due to unattractiveness to investors.

The Swiss Franc continues to be popular with carry traders. These are trades where a currency with a high yield funds a trade withi a currency with a low yield. The Swiss Franc is increasingly being used to purchase currencies with a higher yields. Some currencies with high yields include the Russian rouble and the Turkish lira. The U.S. Federal Reserve's decision to hesitate to raise interest rates in the U.S. further have sent traders looking for better-yielding opportunities.

The British Pound continues to gain against the Swiss Franc after Brexit risks eased due to the increasing chances of a longer delay in the Brexit process, an eventual customs union, or even a second referendum.

An anticipated eventual Trump trade deal with China and economic turmoil outside the U.S. continues to support the U.S. Dollar in which the standard Swiss Franc commodities contract is denominated, pushing the Franc exchange rate lower. The Euro is under assault from continued quanitative easing from the European Central Bank. The ECB balance sheet keepls growiong. Euro parity with the U.S. Dollar now seems only a matter of time. The Trump Adinistration claims a trade deal with China is "90% done." Turkey, Argentina, China and Italy are regions where exchange rate and sovereign debt could see a lot of trouble. China itself has massive indebtedness and extreme government intervention into its economy, which results in GDP growth but no commensurate growth in aggregate profits.

At first, actions taken by the Swiss National Bank to weaken the Franc seemed to have little impact as it continued to gain against other currencies. However, withi the passage of time, the bank's actions have apparently succeeded to some degree at last after two years.

All Swiss Franc (CHF) banknotes feature the four national languages of Switzerland: Germany, Romansh, French, and Italian. For years, it had a reputation for being a safe haven or hard currency, often purchased during times of uncertainty due to tis reliabilitiy and stability. It has been regularly used as a global reserve currency. Switzerland adopted the gold standard in 1865 and legally maintained it until 2000.

The SNB's deposit rate is the lowest of any major central bank and continues to threaten that it will intervene to stem any unwanted appreciation in the franc at any time. If the European Central Bank cuts its deposit rate, it is predicted that the Swiss National Bank will join the race to the bottom of deposits. In spite of negative interest rates, the franc has been rising signficantly against the Euro. Signs of a bubble in Switzerland's property market could drive interest rate expectations and turn the Swiss franc higher.

As Swiss favor cash positions to avoid negative interest on savings, the Swiss National Bank has been busy redesigning banknotes, and adding a new 1,000 Franc note.

Many believe the Swiss Franc is now in oversold territory. But the SNB has made it clear no rate hikes are expected for the next couple of years. It also believes it has the scope to reduce rates further. Global economic concerns have provided some support to the Franc. But this only provides leeway for the SNB to keep interest rates negative. Swiss mortgage lending has increased over the past decade steadily. But it does not appear that the real estate market there is generating sufficient concern to warrant further hikes in interest rates. Regulations are being put in place in Switzerland to set aside 4 billion francs by financial institutions to counteract inherent risks.

Some say European banks are "running out of room" to affect exchange rates, but so is the U.S. Federal Reserve as it pauses further rate hikes.


Point & Figure Chart

114.5I                                                                  R  4/22
     I IMM - Jun-19 Swiss Franc, 125000 fr, c/fr   Cm.=0.03  Lim.= 0.3
     I
     I
     I
113.0I_____________________________________X___________________________________
     I                                     XO
     I                                   X XO
     I                                   XOXO
     I                                 X XOXO
111.5I_____________X_____X___X_________XOXOXO__________________________________
     I             XO    XO  XO        XOXOXO
     I             XO    XO  XO        XOXOXOX
     I           X XO    XO  XO        XOXOXOXO
     I         X XOXO    XO  XO        XO O OXO
110.0I_________XOXOXO____XOX_XO________X____OXO________________________________
     I       X XOXOXOX X XOXOXOX       X    O OX
     I       XOXOXO OXOXOXOXOXOXO      X      OXO
     I       XOXO   OXOXOXO O OXO      X      OXO
     I       XOX    OXOXO     O O      X      O O
108.5I_______XO_____OXOX________O______X________OX_____________________________
     I   X   X      O O         O      X        OXO
     I   XO  X                  OX     X        OXO
     I   XO  X                  OXO    X        O O
     I   XOX X                  OXOX X X          O
107.0I___XOXOX__________________O_OXOXOX__________O____________________________
     I   XOXOX                    OXOXOX          O        X
     I   XOXOX                    OXOXOX          O        XO
     IOX XOXOX                    OXOXO           O        XO
     IOXOXOXOX                    OXOX            O      X XO
105.5IOXOXO_OX____________________OXOX____________O______XOXO__________________
     IO OX  O                     OXO             O      XOXO
     I  O                         O               OX     XO O
     I                                            OXO    X  O
     I                                            OXO    X  O
104.0I____________________________________________OXOX___X__O__________________
     I                                            OXOXOX X  O      X
     I                                            OXOXOXOX  O      XO
     I                                            O O OXOX  O    X XO
     I                                                OXO   O    XOXO
102.5I________________________________________________OX____O__X_XOXO__________
     I                                                O     O  XOXO O
     I                                                      OX XOX  O
     I                                                      OXOXO   O  X
     I                                                      OXOX    O  XO
101.0I______________________________________________________O_OX____OX_XO______
     I                                                        O     OXOXO
     I                                                              OXOXO
     I                                                              O OXO
     I                                                                O O
 99.5I__________________________________________________________________O______
     I                                                                  O
     I
     I
     I
 98.0I----I----I----I----I----I----I----I----I----I----I----I----I----I----I---
                                 11111                       11111
       233345566777778888889999990012211112223333445677788999111221112334
       201210112012220112220001121110101220020022112101102112001120012010
      425888557580069473591151501844391565902838023492761145799402908794
Our computer tells us a non-conventional reactive approach works best for Swiss Franc on p&f charts. Therefore the above chart is taken as giving a buy signal.


Cyclical and Seasonal Factors

We are headed toward a cyclical high and a weak seasonal up period.

Cyclicals Cyclicals Seasonals
Seasonals


Internal Program

Our best-performing internal program is "SwingT". It is giving a sell signal.

Internal Printout 1 Internal Printout 2

Results of "SwingT" for Swiss Franc (blue lines = successful trades, red, unsuccessful): (Not always in the market.)

Results


Third System Confirmation

Our third system is working on a long-term buy signal. (Note, disregard the year on the chart. Our regular readers know this is not a Y2K-compliant system, but it still works.)

Third System


Margin

The point value is $1,250. Initial margin on a single contract is $2,860. Use of options is advised.


Historic Range

Scale traders are not a factor in this price range.

Historical Chart


Commitment of Traders

Commitment 1

In the chart below, the yellow line is the futures price, read on the right axis. All other colors are read on the left axis. Blue is small speculators. Red is large speculators. Green is commercials. Large speculators with the best track record are getting increasingly-short.

Commitment 2

Interpretation of a Different Site Below (Their trader categories vary from ours):

Commitment 3


Volatility / Probable Range

FB 1 FB 2

The average volatility shown below suggests that a change in major trend to up is imminent at a volatility low point.

Range/Volatilitiy Chart


Possible Future Prices

Random Chart


Option Recommendation

Our option trade recommendation is to Buy (1) Swiss Franc September 0.9900 Put and Sell (1) Swiss Franc September 1.0000 Put @ 0.0049 to the sell side or greater.


o 1 o 2 o 5


Calendar Spread

What the Jan. - Jul. calendar spread suggests to us is that buying the near contract and selling the far one is at most times profitable, which we think is a sign that these futures may go flat in the long run. The best time to enter or leave the above spread is when it is at -1.76 or wider selling the far as prices are falling and then buying the near, and exiting or entering when it is at -1.66 or narrower buying the far as prices are rising and then selling the near. At this time, we appear to be at the buy the far, sell the near point.





Level Table:

Level Table

The path of least resistance is down.
108.0|                                                                  R  4/22
 IMM - Jun-19 Swiss Franc, 125000 fr, c/fr   Cm.=0.03  Lim.= 0.3
     |
     |
     |
107.0|_________________________________________________________________________
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106.0|LLLLL____________________________________________________________________
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     |AAJKKKKKLL
105.0|AADDJKKKKKL______________________________________________________________
     |ACDDJJKKKKKL
     |AAACCCCCDDDDDDDJLM
     |AACCCCCDDDDDDJJLM
     |AAACCCCCCCCCDDDDDEEJJJM
104.0|AACCCCCCDEEEFJJJJM_______________________________________________________
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     |AAABBCCCDDEEEEEFFFFFGGGJMMMTT
     |AAAABBBBCCCDDDDEEEEEEFFFFGGGGGGHHJMMNTT
     |AABBBBBBBBBBDDDDEEEEEFFFGGGGGGGGHHHHHJJMMNNSTT
103.0|ABBBBBBBDEEEFFFGGGGHHHHHHHHHHJJJMMMNNNSSSSTT_____________________________
     |ABBBBFFFGGGHHHHHHJJJMMMMMMMNNNNRSSSSSTTTT
     |FFFFGGHHJJMMMMMNNNRRRSSSSSSTTTT
     |FFFFGMMNNNPQRRRRSSSSSSSSSTT
     |FGNNNNNPPPPQQQQRRRRSSSSSSTT
102.0|FNNNOOOPPPPQQQQQRRRRRRRRSSSSSTT__________________________________________
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     |OOOOOOPQQQQRTTTUUUUUUUXYYYYY
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101.0|OOOOPPPPPTUUUWWXYYYYY____________________________________________________
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 99.0|[________________________________________________________________________
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 98.0|-A-B-C-D-E-F-G-H-J-K-L-M-N-O-P-Q-R-S-T-U-V-W-X-Y-Z----|----|-- TPO= 0.000
                               1 1 1 1 1 1                            
       4 5 5 6 6 7 7 8 8 8 9 9 0 0 1 1 2 2 1 1 2 2 3 3 4 4           4
       2 0 2 0 2 0 1 0 1 3 1 2 1 2 0 2 1 2 0 2 0 2 0 2 0 1           2
       5 8 2 6 0 5 9 2 6 0 4 8 2 6 9 6 0 4 9 3 6 1 7 1 4 8           2


Other Factors

Multiple Chart Indicators Summary
Multiple Chart Indicators Summary


Here's an intraday chart for a previous day ( 4/22 ).

Intraday Chart


                 Risk Versus Opportunity Report
                ________________________________

                     SFM9    June Swiss Franc

                      High Price:  100.12
                   Current Price:  98.93
                       Low Price:  98.33

                            Risk:  0.012
                     Opportunity:  0.024

                    (O/R) Ratio =  1.983


Overall Recommendation

Decision Weighting Factors
FactorsWeighted Points
Inter-Market Analysis + 1
Parabolic Chart - 1
Nirvana Chart + 1
News - 1
Point & Figure + 1
Cyclicals + 1
Seasonals + 1
Internal System 1 - 1
Internal System 2 0
Third System + 1
Historic Range 0
Commitment of Traders - 1
Range/Volatility + 1
Level Table - 1
Other Factors - 1
Total + 1
Place 5 June Swiss Franc on a Buy Watch with stoploss @ -1.14 below the get-in point when recent price is represented as "98.93".
____________________________________________________________________________________________________________________________________________C.T.