CHF and the linear reggresion

The slope of the linear regression channel highlights the Swiss franc’s longer-term uptrend. That the Swiss franc has been moving sideways in a narrow range for the past year is thought to be a function of uncertainty over Fed intentions. But can we also detect the trend is losing its grip? Prices are under the long-term linear regression channel, which ends at the intermediate high in early May 2006. A full and decisive breakout of the channel would be at the previous lowest low of the past year, 1.2655 in October 2006.

Now take a look at Figure 2. It shows the franc in imminent peril of breaking support. The currency is already under both the red 20-day moving average and the green 200-day moving average, as well as the blue linear regression line from March 1 to today. This trendline is almost horizontal, meaning that in the most recent three months on the chart, the Swiss has lost its uptrend. The odds of a downside breakout are suddenly fairly high, and nobody knows why.

After five years, is the dollar less out of favor than before? It can’t be relative interest rates, since the Fed is on hold and the Swiss National Bank is making hawkish remarks and money markets are pricing in a hike very soon, possibly in June. A Swiss rate hike would argue for a higher franc, not a lower one. Maybe the Swiss franc is losing favor because markets are feeling good these days and not in need of a “safe haven” — one of the franc’s traditional roles.

Liquidity is still ample, despite inflation fear and rising rates in many places. Emerging markets such as Brazil, China, and India are booming, inspiring traders to borrow the Swiss franc cheaply to buy things such as the Bovespa stock index in Brazil or the Shanghai index in China. In other words, maybe the dollar has nothing to do with the newly floppy franc; the dollar/Swiss exchange rate is just a side effect of other transactions.