Swiss stun FX market, tech leads US equities lower, European stocks rally, ASX futures down 22

Reminder: Today I'm writing to you from The Chedi Club in Ubud, a sister hotel to The Legian, set in the stunning rice fields of Ubud. All readers are reminded that they have just two weeks left to open a new Rivkin advice, stockbroking, global dealing, foreign exchange or wholesale managed account, or a self-managed superannuation fund, to be in the draw to win Rivkin's $8,000 luxury trip giveaway - see for all the details.

Some big news emerged last night that probably affects very few of our members, given the very limited exposure that our clients have the Swiss franc. Nonetheless, the story is very much worth covering because it teaches us once again that anything can happen in the markets. From December 2009 to August 2011, the Swiss franc appreciated against the euro by about 25%, whereby the EURCHF currency pair went from 1.51 (one euro buys one and a half francs) to 1:1 by August 2011. At the time, the European Union was experiencing a debt crisis and traders were bailing out of the euro and buying the Swiss franc, which annoyed the Swiss National Bank (SNB) given the strengthening currency's negative effect on the Swiss economy. In a not-so-subtle way, the SNB decided to peg its currency to the euro at a rate of 1.2, meaning that if the Swiss franc strengthened against the euro by more than that rate it would sell local currency reserves, and if it weakened against the euro it would buy Swiss francs to keep the EURCHF price at or around 1.2.

Last night, in an even less subtle way (there were some threats and rumours back in 2011 before the intervention) the Swiss decided to unpeg their currency from the euro, signalling that it does not want to be a part of the continuing falls in the euro versus other currencies, as the looming European Central Bank's further rounds of quantitative easing become closer to a reality. Today's first chart shows the application of the peg in 2011 and then the removal of it last night - the candlestick chart here illustrates the trader panic as Swiss FX markets dried up and pushed the EURCHF pair at one stage to a low of 0.8199. That a 40 cent drop (or one third) that happened in a matter of 19 minutes - just imagine walking away from your AUDUSD trading screen at 82c for 20 minutes and coming back to a level of about 55c! The second chart today is a minute-by-minute picture of what happened on a relative basis, with the EURUSD and AUDUSD currency pairs pictured in blue and black.

But as prefaced, rather than being a practical implication for Rivkin clients this is very much a lesson to everyone about what can happen in the world's most liquid asset market of foreign exchange. We often speak of the benefits of FX trading, one of which being the levels of liquidity and a trader's ability to enter and exit FX pairs at their desired levels, unlike stocks that might gap up and gap down severely when company announcements are made. But in a world where central banks are not ashamed of playing a little tit-for-tat against others who aim to manipulate the levels of their currencies, FX markets can certainly gap too. Watch the real estate market in French border towns boom as the Swiss suddenly get their buying power back against the euro - anyone who owns a chalet in Chamonix will be happy today!

To stock markets and all of this action in FX markets had little effect - European stocks rose between 1.4% and 2.4%, but the bigger driver of the Australian market (Wall Street) had disappointing earnings from financials and retailers. Falls in the copper price--despite a small rebound overnight--have also cast a shadow over market in general, and as a result the S&P 500 got off to a poor start and finished at the lower end of its daily range at 1,992.67.

Australia's ASX/S&P 200 has a negative 22-point lead this morning; however, iron ore, copper, gold and silver all put in gains overnight. While the oil price volatility continues to keep energy investors guessing, stronger metals markets helped support the AUDUSD (US$0.8220) and may bring some green to the resources screens today. Bigger than expected losses for Citigroup and Bank of America may drag our big financials down. In addition to that we've got yesterday's Australian 6.1% unemployment rate (versus 6.3% expected) filtering through investment markets and this may convince some foreign buyer's that Australia's apparent one-trick economy is not necessarily in a downtrend. Let's see if this teases out some buyers. FX traders should watch out for US CPI figures, to be released at 12:30am Sydney time tomorrow - expectations are for a consistent 1.7% for core CPI and drop to 0.7% for CPI inc. food and energy, due to the oil price.

Today's photos at the end of the article include one overlooking the rice fields at The Chedi Club in Ubud, and one of me taking shots in front of the hotel restaurant. This is where our lucky winners will enjoy complimentary cocktail hour every evening during the Ubud leg of their stay! You know you always wanted to take advantage of Rivkin's cheap stockbroking rates or run your self-managed super fund with us, so just phone 1300 748 546 now and use this promotion as an excuse to make your wealth management life easier!

Today’s charts are taken from the Rivkin Trader platform. 30,000 global instruments available to trade including FX, commodities, index, ETFs and international shares. Trade Australian share CFDs from just $8 or 0.10%. Click here or phone 1300 748 546 to get your free $100,000 demo account.

Upcoming economic announcements: Japanese asset purchase data out at 10:50am, German CPI out at 6pm, Eurozone CPI out at 9pm, US CPI out at 12:30am, all Sydney time.

Click here to see more of The Chedi Ubud.

comments powered by Disqus

DISCLAIMER: Rivkin aims to provide clear and simple information to those visiting our website. If any part of this disclaimer does not make sense, please phone Rivkin and ask to speak with a member of our Dealing and Relationship Management Team. Rivkin provides general advice and dealing services on securities, derivatives and superannuation (SMSF). Rivkin also provide SMSF administration and accounting services. Rivkin does not provide advice that takes into account your, or anybody else's, investment objectives, financial situation or needs. We strongly suggest that you consult an independent, licenced financial advisor before acting upon any information contained on this website. Investing in and trading securities (such as shares listed on the ASX) and/or derivatives (such as Contracts for Difference or 'CFDs') carry financial risks. CFDs carry with them various additional risks that differ from more simple securities such as fully-paid company shares. Some of these risks include not owning the underlying instrument from which a price is being derived, settling trades 'over the counter' with a financial institution rather than on a stock exchange, and using leverage to gain access to trades that may have a higher face value than your initial deposit. This risk of leverage means that it is possible to lose more than your initial investment. Our aim is to create more life choices for our clients, which means improving the wealth of clients throughout many market cycles by nurturing a relationship spanning many years. If you are not comfortable with your understanding of the risks involved before using a Rivkin product and service, please contact our office to seek further information or a Product Disclosure Statement, or make an appointment to sit with one of our friendly financial experts. It is in our interest for your Rivkin experience to be a rewarding and comfortable one. Rivkin is a trading name of Rivkin Securities ABN 87123290602, which holds Australian Financial Services Licence No. 332 802.