No Relief Rally, but the Dollar Squeaks By the Pound and Franc

(This is an excerpt from an article I originally published on Seeking Alpha. Click here to read the entire piece.)

The relief rally for the U.S. dollar that I expected after the S&P downgrade of U.S. government debt did not materialize last week.


No relief rally for the dollar yet, but it still refuses to go any lower
No relief rally for the dollar yet, but it still refuses to go any lower


{snip}…The dollar gained 1.6% over the franc BUT not until after the franc printed a parabolic move against the dollar (also against the euro and the pound) on Tuesday, August 9.


More and more traders and investors are trusting their money with Switzerland.
More and more traders and investors are trusting their money with Switzerland.

*All charts created using TeleChart

This parabolic “panic” and subsequent snapback caps a very long trend for the franc…{snip}…The franc has clearly taken leadership in the “safe currency” trade.


The dollar's decline versus the franc has been consistent and just accelerated
The dollar's decline versus the franc has been consistent and just accelerated

Source: dailyfx.com charts

{snip}

With the franc reaching parity with the euro, rumor and rhetoric went to work in the market. Early Thursday morning, Bloomberg quoted Swiss Central Bank Vice President Thomas Jordan as he claimed the SNB was prepared to peg the franc against the euro. Such a move is the ultimate intervention…{snip}…this threat finally put some real fear in the market, and the franc retreated quickly from the parabolic move.

{snip}


A wild and violent week where the U.S. dollar and the franc swung down and up by 10%
A wild and violent week where the U.S. dollar and the franc swung down and up by 10%

Source: dailyfx.com charts

…{snip}…

Until this year’s tight trading range, not even the franc could compete with gold as a store of value.


Gold regained the advantage over the franc after this ratio hit the top of 2011's range. Is another bounce back up coming as gold corrects?
Gold regained the advantage over the franc after this ratio hit the top of 2011's range. Is another bounce back up coming as gold corrects?

Source: stockcharts.com

{snip}…at some point, this trading range will break, and I am sure traders will chase that new momentum. The SNB would definitely prefer that traders and investors return their francs for gold as soon as possible…or at least euros.

Be careful out there!

(This is an excerpt from an article I originally published on Seeking Alpha. Click here to read the entire piece.)

Full disclosure: net short Swiss franc; long GLD, GG

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