FX Wars Episode 5 - The (USD) Empire strikes back!
Updated
I go long the USD vs CHF here from 0.843.
I give the trade a high probability of 80% to be a winner, lets see!
Once upon a time in an FX universe far, far away...
The (supposedly) evil US(D) empire was pushed to the brink of defeat by the CHF rebellion, but "something" suddenly happened...
...life stirred into the USD again and it was sent back to fulfil its task (the bondage of all other currencies).
What that "something" was I will unravel after the (profitable) end of this trade.
USD facts:
- The market is pricing in almost 7 rate cuts for 2024
-> this is diametrically opposed to the expectations of the FED members, who expect a total of 3 rate cuts for 2024
- Is the market once again too euphoric here and is frontrunning itself with possible rate cut fantasies?
-> I would like to leave this question open for now, as I also expect more than 3 interest rate cuts by the FED in 2024
But the fact is: market expectations can only be fulfilled if either
A) there is a recession in the USA and or
B) inflation permanently falls below the 2% mark
CHF view:
The SNB is currently on Christmas holiday and is probably letting loose while skiing in the Swiss mountains followed by apres-ski party hits.
But as soon as the party is over and the hangover is felt all the harder in the new year, the Swiss National Bank will have a heart attack when it looks at the value of the franc.
-> It is now more "overvalued" than it was during the corona crisis, when the SNB had to intervene to actively weaken the CHF
- Now these are completely different circumstances under which the SNB has to operate and yet it can be anything but satisfied with the strength of the franc...
More on this later in the comments...
I give the trade a high probability of 80% to be a winner, lets see!
Once upon a time in an FX universe far, far away...
The (supposedly) evil US(D) empire was pushed to the brink of defeat by the CHF rebellion, but "something" suddenly happened...
...life stirred into the USD again and it was sent back to fulfil its task (the bondage of all other currencies).
What that "something" was I will unravel after the (profitable) end of this trade.
USD facts:
- The market is pricing in almost 7 rate cuts for 2024
-> this is diametrically opposed to the expectations of the FED members, who expect a total of 3 rate cuts for 2024
- Is the market once again too euphoric here and is frontrunning itself with possible rate cut fantasies?
-> I would like to leave this question open for now, as I also expect more than 3 interest rate cuts by the FED in 2024
But the fact is: market expectations can only be fulfilled if either
A) there is a recession in the USA and or
B) inflation permanently falls below the 2% mark
CHF view:
The SNB is currently on Christmas holiday and is probably letting loose while skiing in the Swiss mountains followed by apres-ski party hits.
But as soon as the party is over and the hangover is felt all the harder in the new year, the Swiss National Bank will have a heart attack when it looks at the value of the franc.
-> It is now more "overvalued" than it was during the corona crisis, when the SNB had to intervene to actively weaken the CHF
- Now these are completely different circumstances under which the SNB has to operate and yet it can be anything but satisfied with the strength of the franc...
More on this later in the comments...
Note
🟢The trade is off to a great start -> nearly 70 Pips in Profit✅️🟢I expect the trade will hit the target in the coming months, probably in Q2 24✅️
📊🇨🇭This week we got the Swiss CPI which could bring some volatility into the market
📊🇨🇭Inflation data out of Switzerland over the next two months:
-> It will rise slightly, as the higher electricity prices are now having an bigger effect and also rental prices, which are adjusted once a year in Switzerland, will also contribute to an increase.
Note
📊🇺🇲To continue this strong reversal in USDCHF two things have to be strong today:1. NFPs🇺🇲📊
2. ISM Services🇺🇲📊
If these both beat consensus forecasts we will see USDCHF at 0.87 by early next week✅️
Note
🇨🇭📊As forecasted the Swiss CPI saw a rise towards 1.7%.📊🔮And as I said the next month will see a rise again this time to 2% or maybe even slightly above🔮📊
-> BUT: This rise will be temporary so the SNB won't act on it.
🏛🇨🇭I see the SNB cutting rates in June 24🟢
📊🇺🇲US Data was more mixed, with the NFPs stronger but the ISM weaker.
-> The trade will take some more time, the US CPI data tomorrow will decide how fast we will hit the target✅️
Note
📊🇺🇲 Both the US CPI (inflation data) and the jobless claims surprised positively today🟢 -> This is excellent for my USDCHF long in the long term and it should sustainably break the resistance at 0.855 as early as next week ✅️
Note
🟢My 3rd favourite trade next to my other USDCHF long and my GBPCHF Long is this trade here🟢As if pulled by a string (or rather like my drawn arrow ;) it runs straight up and should soon reach the 0.87 mark ✅️
🇨🇭📊 (Only the Swiss CPI data at the beginning of February could act as a (brief) spoilsport here...)
Note
🟢My USDCHF long took a short breather before another leg towards the 0.91 target 🟢-> My drawn arrow served as an unbreakable support ;)
🟢Since he has given me a lot of pleasure so far, I'll let him breath and wait for more economic data to push this further towards target✅️
📊🇺🇲 The US data was brutally strong recently and consequently led to continued USD strength.
🇨🇭📊 Next week's inflation data from Switzerland will definitely bring volatility✅️
⚠️📊🔮 As predicted 2 months ago, Swiss inflation will rise towards 2% or possibly even slightly higher this time 🔮📊⚠️
Note
This week we are facing the🏛🇨🇭 interest rate decision by the SNB and the
🏛🇺🇲 meeting of the US FED -> both are extremely important data points for the USDCHF.
🏛🇨🇭 The market is expecting the SNB to cut interest rates with a probability of 40%, which, if it actually materialises, would give the USDCHF a decent boost 🟢
🇨🇭🔮 But even if they didn't cut rates, this wouldn't be a long-term disaster for my USDCHF Long because, as I predicted 4 months ago, the SNB will cut rates in June at the latest ✅️
Quote 13 December 2023: "- My forecast: 1st interest rate cut by the SNB in summer 2024 (March or June)"
Note
🏛🇨🇭 And the SNB was actually the first of the G8 central banks to cut interest rates back in March-> the CHF got a good beating💥💥💥 (as expected)
-> 🔮my prophecy from December last year came true🔮
! 🔮But that's not all folks🔮 !
-> 🏛🇨🇭Ich expect the SNB to cut interest rates again in June🔮
-> the CHF train will continue its downwards journey✅️
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