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Where Are Global Players Going for Safety Now?


After an article about the Swedish krona becoming the new safe haven for global investors, it's time to let the charts confirm or deny that assertion.


The Swiss franc shows strength versus the Swedish krona recently – not vice versa (when using the US dollar as the base currency).

Contrary to what our friends at Bloomberg put forth in their article on Monday, the chart below suggests that the Swiss franc is showing good relative strength versus the Swedish krona when we use the US dollar as the base currency. The top graph shows the USDCHF on a daily basis and highlights how the US Dollar has been declining since late July (risk on!). The middle graph shows the USDSEK on a daily basis and shows that the US dollar started to decline against the Swedish krona a bit earlier than against the franc, but that the weakness recently has moderated. That moderation in the USDSEK weakness has turned into an actual recent change in direction to the upside. A change higher has occurred in USDCHF as well, but it has been much more subdued – giving the franc the edge recently versus the krona (right side of the chart – specifically the lower graph). Just to be clear, when the lower graph is heading down, the franc is showing relative strength versus the krona (using the US dollar as the base currency).

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The same pattern is seen here when using the euro as the base currency.

I won't add much to this except to note that this highlights that it's not a dollar / euro thing, it's a franc / krona thing that I'm highlighting here.

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Does the franc's relative strength versus the krona mean anything to average investors? It should!

So, how can the average investor use this information (which admittedly would appear to only be useful to currency players on the surface) to their advantage? Well, when I added a chart of the S&P Depository Receipts (NYSEARCA:SPY) to the franc / krona / euro chart (see below), it reveals some potentially useful information.

The red and green vertical lines indicate where the spread between the EURCHF and the EURSEK has made major turns. When that spread ratio has turned lower (red lines - indicating relative franc strength versus the krona using the euro as the base), it appears to have preceded a top in the SPY by 60-90 days (see yellow circles). When the ratio has turned higher (green lines – indicating relative franc weakness versus the krona using the euro as the base), it appears to have preceded a bottom in the SPY by 30-60 days.

I will be the first to admit that this is a pretty small sample size (two years worth of data), but this could be something that you'd want to keep on the radar. In particular, I would want to monitor it for divergences (spread declining even as SPY advances or spread rising even as SPY declines) which could help signal upcoming turns in the equity markets.

Is there anything that the chart is telling us regarding current market conditions? As pointed out earlier in this piece and as it quite clear in the chart below, the franc is showing relative strength versus the krona and has been doing so since early August. So, now we're approximately 60 days from the start of that trend – which would put us in the beginning of the window for when we should be seeing some weakness in the equity markets sprouting up. So, we have yet another piece of bearish evidence (on top of my recent highlighting of the weak Aussie currency and likely near-term downside in the euro) from the currency markets.

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Now, onto this week's look at the bond markets…
No positions in stocks mentioned.

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