Documenting the Damage on the Swiss Franc Fallout

Jan 16, 2015: 1:36 PM CST

I wanted to highlight the ‘damage’ or intense price movement on select FOREX pairs because – probably – we’ll never see another overnight move like this in our lifetimes.

The Swiss National Bank shocked the markets with a “Black Swan” announcement that they will no longer intervene to stabilize their currency against the Euro.

For a great, succinct background piece, be sure to read “Here’s what the Swiss Central Bank did and why it’s such a shocker” via BusinessWeek.

And now, we view the damage – for educational and reference purposes – on the charts.

We’ll start with the weekly perspective of the Swiss Franc against the Euro (the focus):

To defend the 1.20000 level, the Swiss National Bank essentially printed francs (currency) and purchased Euros.

Notice the level of intervention at the cap level where the bank acted to thwart natural supply/demand forces which were persistently pushing the value of the Euro lower against the Swiss Franc (and thus strengthening the Franc).

The process worked, manipulating value against the Euro until yesterday’s announcement that the policy would be terminated.

Within moments, all hell broke loose, to use a colloquial term.

Here’s the damage documented on the daily chart (notice the scale):

The 1.2000 level was an artificial intervention/manipulation point in the market.

When the intervention ceased, normal valuation returned almost instantly with a vengeance.

The result was a gargantuan movement in value that took all participants by shock.

Here’s the chart of the Swiss Franc against the British Pound:

In FOREX pairs, the first currency (the Pound) is the numerator and the second currency (Swiss Franc) is the denominator.

A chart going up means the first currency – Pound – is getting stronger against the second currency which is getting weaker.

A movement like this – a collapse – means the first currency collapsed against the second … or in this case that the Franc immensely appreciated against the first currency.

Here’s one more chart of this surprise move, though we could keep documenting it on other pairs:

One of my favorite patterns is the “Arc Trendline” or exponential growth price pattern.

Generally, it is an exhaustion pattern that suggests a collapse after price breaks through the rising, eventually vertical, lower trendline.

While the US Dollar – which has been strengthening over the last few months – continued an uptrend against the Swiss Franc, the surprise announcement similarly collapsed the chart with the instant strength of the Franc.

The result meant that the value the Dollar appreciated against the Swiss Franc over the entirety of 2014 evaporated in a matter of hours.

While rare, one of the risks of trading is so-called “Black Swan” news or economic events that take everyone by surprise.

The Swiss National Bank announcement – and the rapid appreciation of the currency – is one of those events.

Let these charts – and similar FOREX pairs – serve as educational references to these rare events.

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Corey Rosenbloom, CMT
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3 Responses to “Documenting the Damage on the Swiss Franc Fallout”

  1. Jan 16 Stock Scan and Reversal Market Update | Afraid to Blog Says:

    […] Reversal Market Update Jan 16, 2015: 3:22 PM CST After yesterday’s Swiss Franc surprise (see the “Aftermath Update” post from this morning), the US S&P not only stabilized but is showing signs of a bullish short-term […]

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