Why Buy The Swiss Franc And Sell The US Dollar?
On July 2, 2003, at the rate of 1.3496 Swiss franc for one US dollar,
we presented the chart below and wrote: "Medium-term, we can draw the conclusion that the present correction has not much life left.
Where it will end, we do not know exactly - nobody does - but taking the past as a guidance where it may end, we would assume that it should be the area between 1.37 to 1.38 in the worst case."
By July 16, the USD/CHF exchange rate did, in fact, reach 1.3950, but peaked at 1.4276 by the end of August.
While our target of 1.38 was superseded by 3.5%, after August the USD started to dive in earnest and reached a low of 1.2133 by mid-January 2004, a low not seen since 1996.
Since January, we have gone through a bear-market rally of some significance and it is therefore time to analyze where the coming weeks and months may take us:
The long-term picture
The long-term chart tells us simply and clearly that we remain in the down-trend and that the bear market of the US-dollar will soon be resumed.
None of the major problems affecting the US-dollar is nearing any solution, as also demonstrated by the US trade deficit, which is now reaching record lows.
The medium-term picture
The medium-term picture makes the down-trend visible in an eye-catching way.
Several declines can also be observed within the major down-trend resulting in the bear market-rallies of the summer of 2002, the one of last summer and the one which got under way in January of this year.
We also see that the last bear-market rally peaked at 1.3226 at the end of April which likely also marks its end, we believe. The short-term trend indicates this even more clearly.
The short-term picture
The bear-market really which started in February seems to have peaked at the end of April and we think that the time is propitious to short the US-dollar against the Swiss franc again.
Should the US-dollar rebound, however, and close above 1.3250, we would close any short-positions.
The following recommendations were valid at the time of writing, viz. at
and may no longer be pertinent when you read them.
Peter Zihlmann
www.pzim.com
investment@pzim.com
forex@pzim.com
May 28, 2004
Disclosure: The author has not been paid to write this article, nor has he
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interest on the part of potential investors in this stock to the point where
they are encouraged to conduct their own further diligent research. Neither
the information, nor the opinions expressed should be construed as a
solicitation to buy or sell this stock. Investors are recommended to obtain
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in the stock.
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