The Collapse of the EURCHF and the Relation to the SP500

Jun 30, 2010: 10:18 PM CST

The Euro/Swiss Franc (EUR/CHF) FOREX pair has collapsed over the last few months, and this is something many traders are not seeing.

Let’s take a look first at the long-term strong positive correlation with this FOREX Pair and the S&P 500 – stretching back to 2000 – and then look at the recent collapse – there’s no other word to describe it – in the FOREX pair.

The graph at the top is the EUR/CHF (Euro/Swiss Franc) FOREX pair on the weekly chart stretching back to 2000.

The bottom chart is the US S&P 500 weekly chart as well.

I drew vertical highlights to reflect the most recent bottom, top, and bottom in the Stock Market and how it compared to the FOREX Pair – almost 100% correlated.

Look very closely to see the FOREX pair trading in lock-step with the S&P with the exception that the pair broke its correlation during the recent stock market rally from the 2009 March low.

The pair underperformed and fell under its 2009 spike low – technically its October 2008 ‘bear market’ low – at the 1.43000 level in early June 2010.  Perhaps that was an early warning for lower prices yet to come in stocks.

The pair broke support and collapsed from the 1.4000 level to 1.307 during the month of June.  The FOREX pair has now reached a new lifetime low.

Let’s turn to the zoomed in chart of the weekly scale to compare the 2008 bear market, 2009 recovery, and 2010 development:

I kept the highlights to show the 2007 top, 2009 stock low (notice the EURCHF bottomed in October 2009), and the April 2010 stock peak.

The FOREX pair failed to rally during the bulk of the 2009 stock recovery, forming instead a large-scale symmetrical triangle.

The triangle broke violently to the downside in December 2009 (when the US Dollar Index bottomed and the Euro Index topped, of course) and then fell without stopping (much) to its current lifetime lows.

I’ll leave you to draw your own conclusions as to what this might mean for the stock market’s future, if it means anything at all, but for FOREX traders and inter-market analysts, this is a very BIG deal.

Corey Rosenbloom, CMT
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3 Responses to “The Collapse of the EURCHF and the Relation to the SP500”

  1. MadScientist Says:

    Great observation Corey…. Using this data, going long is a terrible decision, even with all of the positive divergence. Markets are terribly oversold on daily charts – shorting at these levels is awfully risky (short term).

    I would personally like to see another brief overbought condition , for an entry point. Something like testing the neckline of the Head and Shoulders. I'm going out on a limb, but how about this for a bearish trading calendar… dipping down to 1013 (around July 4th), rising back up to 1044 to enter short (around July 11) , ride down to 839 or even 665 (around 9/6 or as late as 9/22).


  2. terlyn Says:

    It should then give us a heads up for any end or correction in the downtrend.

  3. abayomi m. akanmu Says:

    Thanks for reinforcing my belief all along in the broken correlation between the eurchf and the s&p 500. i observed it too in 2009 but because of the frequent intervention by the SNB, i always trade that pair very cautiously. Since SNB now realised the futility of its interventions, its far easier to trade the pair.