The new or rather renewed phrase on every bodies lips after yesterday’s stunning bombshell, (delivered with precise laser guidance by the Swiss central bank), is “currency wars”. Previously this phrase had been reserved for the supposed currency disagreements between the USA administration and Chinese officials. The accusation, that the Chinese were manipulating their currency to the detriment of world trade and in particular the dollar’s purchasing power, was an accusation (arguably misplaced) that was re-produced throughout most mainstream media channels for the majority of 2010-2011. Extending the war analogy further ‘friendly fire’ is now incoming from the least likely source..
There is no “currency warfare”, the attraction of the Swiss franc and their banking system for the wealthy has existed for decades. Once central governments and banks adopted zirp policy, combined with injections of huge liquidity into the global financial system, it was inevitable that the Swiss would ‘suffer’ currency flight and wealth flight.
As of March 2010, the total value of released Swiss coins and banknotes was 49,664.0 million Swiss francs, compare and contrast that to the 2010 USA dollar circulation at circa 10.9 trillion combined with a federal debt of circa $23.5 trillion, and you begin to understand the long term benefits of being in the Swissy. The Swiss Franc is used as a reserve currency around the world and is currently ranked 5th or 6th in value held as reserves after the US Dollar, the euro, the Japanese Yen and the pound sterling. Considering the amount of Swiss francs in circulation it therefore becomes patently obvious why a ‘money flight’ phenomena to the Swissy and their banking culture has existed.
The currency is rare, their banking system stable, however, with the advent of forex trading and electronic transfers, the ability to ‘park’ wealth in the Swissy is no longer the preserve of the wealthy or well connected, the cat has been out of the bag and gone viral for as long as forex trading has existed.
Many traders with excess funds, over and above their margin requirements, have simply parked their excess liquidity in the Swissy as a position trade. That safety has potentially been rumbled. More evidence that the currency war analogy is bogus comes with the evidence that the Swedes and Norwegians may be next in the line of fire, where will it end, the Polish zloty, the Isle of Man pound? Are speculators now chasing currencies in the manner of stamp collectors, chasing rarity and lack of circulation as opposed to value and purchasing power? If so that’s an incredibly sobering thought as to where we may be headed in terms of capital, and moreover capitalism…
An even more sobering reflection comes in the form of a EUR/CHF two hour time frame chart over the past 24 hours, after the mid morning parabolic move of yesterday price has frozen as it has on all major CHF pairs. Theories on how to trade that position would be fascinating to read. If we care to extend warfare analogies for the last time one series of currency pairs has been taken out with with a head shot.
The franc plunged 8.4 percent yesterday versus the euro, the biggest fall since the creation of Europe’s single currency. It was little changed in Asian trading, standing at 1.204 per euro at 1:42 p.m. in Tokyo. Asian indices and markets were bullish; the Nikkei up 2.01%, the Shanghai up 1.84% and the Hang Seng up 1.71%. European bourses have carried over this positivity, all major bourses are up in morning trade, the ftse by 1.83%, the DAX by 2.1%, the CAC by 2.55%. The STOXX up by 2.5%. The SPX future is predicting an open of 0.75% +. Gold is down $32 per ounce, Brent crude is up $15 a barrel. After yesterday’s fireworks it’s difficult to find an apt description for the forex markets. The Aussie dollar and yen appear to be the most ‘trade-able’.