The Euro currency and Swiss Franc had been artificially tied together since 2011. Eventually, as with all single markets tying themselves to a larger commonwealth, the single market eventually needs out. It can happen for a variety of reasons either the larger group's or the individual country's but eventually, the fluid movement of a single country's needs will find itself at odds with the larger group's stagnancy.
So it is that on January 15th, the Swiss Franc removed its value cap of 1 Swiss Franc equal to .83 Euros or, 1 Euro worth 1.2 Swiss Francs. The surprise decoupling shocked the markets as you can see on the chart below. Please notice, more than the price spike, the correlation study in the bottom pane. This is where the unraveling of the decoupling will show as these markets begin to act in their own best interests rather than adhering to the previous accord.
The decoupling of the Swiss Franc and Euro currencies continues.
The decoupling of these markets opens the door for more trading opportunities due to reduced market controls. Clearly, in spite of the shock announcement, the markets were relatively fairly valued to each other as we can see by comparing the price relationship from before and after the decision.
Now that the background is set, there is a genuine trading opportunity to be had in the Swiss Franc. Once again, commercial traders appeared to have a head's up in the decision making process or, it could just be good timing that they were heavy buyers in the days leading up to the announcement. However, everyone else appeared to be caught off guard by the market's announcement. Looking at the chart below, we can see that while most everyone was caught off guard, the commercial traders were VERY clear about their view of the Swiss Franc's rally. SOLD! Commercial traders sold nearly 30,000 contracts that week in a market with open interest at the time of around 65,000 contracts. These sales were right on the money and it appears that commercial traders are now looking for another leg lower in the Swiss Franc.
Commercial traders who were long heading into the CHF/EC decoupling quickly reversed their Swiss positions to outright short. Based on the instant profitability of this trade, it appears the commercial traders are setup to expect another leg lower in the Swiss Franc.
The commercial traders are continuing to put pressure on the Swiss Franc. In spite of last week's light buying, commercial trader momentum remains firmly in negative territory. The recent rally off the March contract's expiration lows set our short-term momentum trigger and now, it has fired. The official Commitment of Traders sell signal was sent last night and provides for a protective buy stop to be placed at last week's high of 105.69.
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