The overnight action of the Swiss Central Bank (CNB) effectively pegging the runaway Swiss Franc (CHF) has to be looked at in context to the USD, which is experiencing a reversal of its own.
First, let’s have a look at what the CNB is fighting against: the two year plus rally of the CHF vs the EUR:
In fact, the CHF has been the “2nd gold” for Europeans since the height of the GFC, starting at 1.68 in late 2007 before rising to almost parity with the doomed Euro.
The other “gold” currency, as in safe haven for risk assets when they take flight – the USD – is what I want to look at today.
With the ructions in Europe causing great uncertainty, the Euro appears set to breakdown from its Greek-induced rally from May last year:
The Japanese Central Bank may try to emulate their Swiss counterparts, and although this is coming off a very weak base, the Yen is weakening against the USD:
Although let’s be clear, the Yen has been in a 4 year rally against the USD, topping at 123 Yen in July 2007, and the JCB would love to reverse those gains to boost exports:
So now we come to the US Dollar Index (a weighted basket of currencies, including the EUR and CHF), the short term chart forming a solid rectangle pattern.
Remember this chart from my study on USD during crises? (click to enlarge full size)
If history is any guide, extensive QE by the Federal Reserve may be on the cards as the US Dollar Index rises, as they desperately don’t want a stronger USD to destroy any remnants of their manufacturing and export based industries.
Just as the Swiss don’t want a strong Franc, the Europeans (read: Germans) don’t want a strong Euro, the Japanese are fed up with a strong Yen and the Chinese don’t want a strong Renmimbi.
It seems we are different to the rest of the world after all.