Hi, the fall out from the Swiss National Banks actions on Thursday are still being felt and despite the millions of words written by thousands of experts the picture is still not clear as to what happens next.
The actions of the SNB and its effects were felt around the world and have potentially hammered their own exporters & tourism in the process, the latter right in the middle of the Skiing season.
The Guardian newspaper in the UK went as as far as to title a huge article “Thomas Jordan – ‘the most hated man in foreign exchange?’ (Jordan is the head of the SNB)
The bottom line is that this was a “Black Swan” event that Fotis has been warning about in recent weeks but in reality NO ONE on the planet appeared to have any inkling (including the Swiss government & IMF) as to what the Swiss National Bank were going to do, in fact only 2 days earlier the SNB‘s vice-chairman said that the bank “are convinced that the minimum exchange rate must remain the cornerstone of our monetary policy”. In other words, there was absolutely no warning of this.
A Black Swan event in statistical terms is a 20-sigma move where the odds against such a move happening are about 10 to the 50th power. To put that in context, Black Monday, where the US stock market crashed down -25% on October 19, 1987, was a 20-sigma move and Black Thursday, where the US stock market crashed down -13% in 1929, and was an early warning for the Great depression, was a 10-Sigma event.
Today, the Swiss Market Index (symbol: SMI) was down -14.3% at one point, only to recover so far to -10%. This is the single worst day in the history of that stock market.
If you want to find out more about what happened and what the current rumour mill is churning out then get “googling,” the important thing to note is what should you do as a trader? Currently everything Chf related is as clear as mud and the most sensible option is to stay well away from all things CHF BUT the impact of this event goes much deeper.
The viability of many brokers is currently in doubt, some have already closed their doors, others are being summoned by their regulators to provide proof of their solvency vis a vis their operating regulations. Indeed Alpari Uk this morning have reversed an earlier release of their impending closure by stating this weekend “For the avoidance of any doubt and notwithstanding previous announcements by the company, Alpari (UK) Limited has not entered a formal insolvency process.
The board of directors are urgently considering all options including a sale and are liaising closely with the FCA. We hope to make a further announcement shortly.”
This may well have been prompted by the news that FXCM had received a $300 Million loan to help them through the crisis: http://www.marketwatch.com/story/leucadia-to-provide-fxcm-with-300-million-loan-2015-01-16
A further complication as those who study the “Global Macro” know is that ALL markets are inter related. Thursdays events affected the European stock markets which then had a knock on effect in the Usa. Gold surged as was to be expected but less well known was the impact on other European countries in diverse sectors. For example in Poland 46% of mortgages are denominated in Chf which means that many mortgagees have been thrust into negative equity in a heartbeat.
Anyone considering taking a mortgage in a foreign currency BEWARE.
Darren Courney Cook, Head of Trading at Central Markets Investment manager said on Friday “This kind of event is the kind of thing that will trigger volatility. This is not a one day thing now.”
If you have a deep understanding of how global markets are synergised then there are opportunities out there not just from trading forex BUT for the vast majority of you the best advice is walk away. If you didn’t lose money in this debacle then count your blessings. if you did then you have my heartfelt sympathies.
Lessons to be learned? As previously stated by all of us NEVER, EVER Trade without a stop. Sometimes in a Black Swan event they can and do get jumped but you should get stopped out at the next available price.
Follow strict risk management rules
Only trade with a broker in a reputable jurisdiction where client funds are held in segregated accounts and where accountability is high and rigorously enforced.
The Forex Week Ahead
For those of you who are new I usually at this point show a detailed study of trading opportunities that I see for the week ahead including where I am looking to enter.
This week is not the same due to the Chf situation but I do show you areas of potential interest from longer time frames.
However I have been explaining since Christmas that I wasn’t in a rush to trade as price was at extremes on many pairs and that markets often don’t settle down until after Martin Luther King which is a Bank Holiday, tomorrow (Monday) in the USA.
In view of last weeks events AND the impending ECB “will they, won’t they, if they do, how much”, QE announcement at Thursdays press conference I will probably leave forex alone for another week.
The ECB are notorius for their indecison followed by “fudged” decisions taken usually to appease the Germans. A further complication is that Fitch downgraded Greece back to negative from stable and their elections, on the 25th of January, could see those who want a Euro exit hold the balance of power.
The fear then is that Spain, Italy & Portugal could follow and the Euro implodes.
Fear & indecision make uncomfortable bed-fellows for stable markets.
Forex is supposedly completley random. We are often “spookily accurate” in using previous patterns to identify possible future moves but when extraordinary events are afoot its often safer to walk away. In fact many experts have suggested that the SNB may have acted in the way that they did and when because of the ECB’s woes and subsequent anticipated actions later in the week.
One thing is for sure we can predict with some certainty that the week ahead will be a wild ride and I am not in the habit of going looking for trouble with my money, that of my clients nor members here. Unless you are at a pro level and willing to take above average risks I recommend walking away.
You have seen how many Companies with huge numbers of highly educated, knowledgeable and well informed employees have fallen this week (in fact one of the USA’s biggest Hedge funds with $830 million in assetts has been said to have been wiped out: http://www.bloomberg.com/news/2015-01-17/swiss-franc-trade-is-said-to-wipe-out-everest-s-main-
fund.html – I dont for the life of me understand how they could have possibly allowed themselves to be so exposed, especially as they claimed to focus on emerging markets, which Switzerland is not.
In general I expect to see continued $ USA strength, Euro & Gbp weakness. I show you the major areas that I will watch only from daily candle closes and I will definitely not take anything after Wednesday London close.
Places of interest are:
Aud: COULD get dragged back up by gold if the latter continues. These 2 used to be closely correlated and in a risk off situation gold is attractive. I am still only looking to short the Aud and 0.8400 is of interest intra day and 0.8650 from daily if bigger moves.
Cad: Long at 1.1635
Gbp/$: Preferred pull back to 1.5500 to short. Option B is a break and close below weekly trend line around 151.00 but could be limited as 1.500 just below.
Euro/$: High risk, but a pull back to 1.1850 interesting to short BUT not after London close on Wednesday.
Euro/Gbp: Pull back to 0.7800 for a pull back. Price bounced back off bottom trend line thats been in place since 2013 ( I said 2018 in the video- note to self -stay off the sherry before sun down 🙂 If the ECB news sees a bigger move then 0.8000 is the place AFTER the dust settles
Nzd/Cad: Pull back long at 0.9150
Nzd/$ short at 0.7950
New members please note: If I am looking to take a trade long, at for example 1.5000 , I place my order 10 pips above & 10 pips below for a short. This is because price often does not quite reach a major line and you need to allow for spreads.
We are NOT a “tipping service” our aim is to teach you how to trade for yourself.
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