Swiss Franc: The New Safe Haven Currency?
Today's Idea
Although the Swiss Franc futures have staged a modest correction during the past few sessions, it is doubtful we will see a mass exodus from the currency, especially given the current political and economic climate. A quick look at the daily chart for the June Swiss Franc futures shows solid chart support near the 1.0275 area. Some traders who believe that this support point will not be tested during the next several weeks may wish to explore selling puts in Swiss Franc futures options with a strike price below chart support. For example, with the June Swiss Franc trading at 1.0785 as of this writing, the April 1.0250 puts could be sold for about 0.14, or $175 per option, not including commissions. The premium received would be the maximum potential gain on the trade and would be realized at option expiration in early April, should the June Swiss Franc futures be trading above 1.0250. Given the risks involved in selling naked options, traders should have an exit strategy in place should the position move against them. One such strategy would be to buy back the short options before expiration should the option premium trade at 3 times the amount received for selling the option originally.
Fundamentals
With all the uncertainty surrounding the political upheaval in the Middle East and North Africa, many investors would traditionally move their funds to so-called safe havens, such as the U.S. Dollar, Gold, or U.S. Treasuries. However, given the weakness in the Greenback, the "costs" of holding Gold bullion, and fears of inflation hurting bond prices, there appears to be a new player catching traders' eyes -- the Swiss Franc. Swiss Franc futures have been trading near all-time highs since the beginning of currency futures trading, as funds continue to flow to this currency, especially from investors in Europe. This inflow to the "Swissy" should really come as little surprise, particularly given the concerns surrounding the Eurocurrency and the debt problems facing many of the nations in the European Union. The strength of the Franc has been a concern of the Swiss National Bank (SNB), which has made several attempts at intervention in the FX markets to weaken the currency, especially vs. the Euro, in order to make its exports competitive in the world economy. Although these attempts have ultimately been unsuccessful, the fact that the SNB is willing to intervene in the Forex markets may have enough to keep some traders from amassing too large a bullish position in the currency, despite its current upward trajectory. However, should the political and economic difficulties continue, some investors may not fear the SNB in their pursuit of a "safe haven".
Technical Notes
Looking at the daily continuation chart for Swiss Franc futures, we notice that after the huge run-up from June through mid-October of last year, the market has been rather choppy, with some moderate price swings occurring on the way to new highs. Prices are beginning to pull away from the 20-day moving average, and though it appears we may be heading for a bit of a consolidation period after making new highs, we note that volume has fallen-off a bit on the "correction", which may be the beginning of a bull flag formation. There is a bearish divergence forming in the 14-day RSI, but lately, it does not appear to have hampered the overall bullish trend for the currency. Support for the June Swiss Franc is seen at the February 11th low of 1.0268, with resistance seen at the contract high of 1.0836.
Mike Zarembski, Senior Commodity Analyst
