Another headline-driven news day with some interesting levels breached and so far rejected. Parity for EURCHF, $2k /oz in gold and highs not seen since 2008 for oil. The week is going to be dominated by the Ukraine situation and a lot of supply shocks will be driving prices in the likes of wheat and energy.
The EURCHF poked through parity today, with the lowest print being 0.99711. The Swiss National Bank (SNB) is famous for pegging the CHF to the EUR in the past with disastrous results for those who couldn’t manage risk when the central bank unexpectedly removed the peg. Is 1.000 (EURCHF) the new peg? This morning after 4 consecutive weeks of the appreciation of the franc against the euro, the SNB came out with a statement saying that they look at the overall currency situation and that individual pairs do not play a role. They do however remain willing to intervene in the foreign exchange market as necessary.
Today I would bet they felt it was necessary. The uncertainty in the markets has led to traders and investors looking to park their money in traditional safe assets. We have seen moves into the Swiss franc, yen, and gold as well as the US dollar a.k.a the global reserve currency. If there are moves into the dollar and franc and out of the euro, it makes sense the SNB would target their operations to sell their currency and buy the cheaper euros.
Under normal circumstances, I would be keen to jump in and trade alongside the central bank but unfortunately, that is currently a very crowded trade.
The ActivTrader sentiment indicator shows that 93% of traders on the platform are going long the EURCHF if they trade it. Which to me suggests we need to see another dip below parity to scare this cohort out of their trade before we look to join in. The SNB are infamous for pulling the bids as we saw in January 2015.
The forex heatmap shows that whatever the SNB did today, worked. As the CHF is currently the weakest currency on the board, with the USD the strongest and the euro mixed. The day had started out more risk on with moves into the commodity pairs but now the picture is less clear.
Brent is printing a really ugly, possible blow-off top, daily candle. The US had been trying to work out how to ban imports of Russian oil and to also gather together some like-minded countries to apply further pressure on Putin’s economy. Europe as a bloc, couldn’t apply sanctions on Russian energy imports as Germany requires the gas through the Nordstream 1, etc. In fact, gas flows since the start of the conflict have risen as Russian companies take advantage of the high prices and Europe worries and cold winter increase demand. UK PM Johnson has said that the sanctions on Russian energy are on the table but pointed out the obvious saying that “we cannot close down the use of oil and gas overnight, even from Russia”. He also said that the UK will look to use more of its own hydrocarbons. On that note, we should be looking to invest in companies operating in the North Sea, especially oil exploration and producers.
In other oil-related news Libyan oil engineers tried to get the Sharara and El Feel fields up and running again following the easing of a blockade but the Iranian nuclear energy deal which could then allow for Iranian oil to be sold to the wider market came under some pressure after Russia’s intervention on the matter over the weekend.
Gold at the London close is still under the influence of the bulls, though there does seem to be some selling at the $2k psychological big figure. I have $2018 as a target for where I would expect the bears to step in if they are hanging around still. The ultimate short trade would be all the way from above $2k back down to the liquidity pool around $1677. However, this bullish reaction has gathered pace as the conflict has grown worse in Ukraine, so there is no fundamental reason to think gold goes lower until the uncertainty is out of the market. Looking at the VIX, the volatility at these elevated levels could be about to go higher as the daily candle is still very much in the green.