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
Afraid to Trade.com

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