29th April,1999

There is no doubt that the USD-CHF Uptrend has been very powerful, especially since mid-Jan '99, and for good reason. However, over the last month or so, the market has started to feel more and more unnatural and the Charts are starting to look less and less aesthetic. All things considered, we stand by our view that the 1.47-1.54 area should be seen as a "Turnaround Region" for USD-CHF, with a potential for the correction to extend to the 1.45 region. We are ready to sell Dollars at 1.5120/ 1.5170/ 1.5240/ 1.5320/ 1.5370 and 1.5420. Or to put it another way - at these levels, we would NOT buy Dollars, we would sell Dollars.

Some History and Fundamental
The present uptrend can be compared to the uptrend from 1.20 (Aug '96) to 1.4862 (Feb '97), a rise of 23.85% in 7 months. The current uptrend, which we can argue started from a low of 1.2742 on 8th Oct '98, is now into its 7th month.

The reason for the depreciation of the Swiss Franc the first time around was that the Deutschemark was getting clobbered as Europe (including Germany) was fudging figures in order to meet the Maastricht criteria. Then followed a long period (March '97 to July '98) of consolidation in a range of 1.40 to 1.55 (in Swiss Franc), as the Central Banks worked to keep the Deutschemark stable before the birth of the Euro. The Deutschemark and Swiss Franc gained sharply against the Dollar over the period July-October '98, largely on the back of (a) the precipitous fall of the Dollar against the Yen and (b) some pre-launch Euro enthusiasm.

This enthusiasm carried over into the New Year and the birth of the Euro near 1.18 saw forecasts of 1.25 for EURUSD and around 1.30 on USDCHF, forecasts, which we agreed with at that point of time. Time proved us (and the forecasts) horribly wrong as the market dumped the Euro instead of buying it. The rationale this time around was focussed on the inherent and structural problems faced by Europe on the road to growth, which problems cannot be solved just by a new currency being born. Fair enough. We were suckers to be led into believing a fairy tale. But now, not believing fairy tales anymore, we do end up thinking that the market has not been the perfect example of Perfect Competition that it usually is. There must have been some people who foresaw other people becoming suckers or who just knew better. Be that as it may, the Euro has been justifiably sold to discount for the inherent weaknesses of Euroland. As it stands, the market has been able to sell a currency (Deutschemark-Euro) twice (96-97 and 98-99) for basically the same reason. Our question now is, hasn't the market discounted Euroland's weakness enough? At least for the time being? We think it has.

Comparison with 96-97
As mentioned earlier, this is the 7th month of the current uptrend. The 96-97 uptrend also lasted 7 months. We are in the 4th straight month of Dollar strength. A straight 4-month Dollar upmove has occurred only once before since Nov '95 - in the 96-97 uptrend. The are some differences between the current trend and the 96-97 trend though.

• This time, the market has been moving along the upper boundary of the uptrend-channel, whereas on the earlier occasion, the market had been moving along the lower bounds of the channel (or was well within the upper-lower bounds. This makes us think that the earlier trend was inherently stronger than the current trend.
• The gradient of the 96-97 uptrend was lesser than that of the current trend, which again casts doubts on the current trend's continued strength.
• There was a violation of the upward channel the last time, when the market shot up 1.3398 to 1.4408 in Jan '97. This month (April 99) has also witnessed a violation of the upper bound of the channel, but with much less strength than witnessed in Jan'97. Yet another sign of weakness.
• Probably the clinching difference between the 96-97 uptrend and the current uptrend is that on the earlier occasion, Dollar purchases commenced from 1.20. The Dollar was much cheaper then than it is now, when the market is trading at 1.5165

For the market to reach 1.60 (to coincide with Parity on EUR-USD) over the next month, the Dollar must appreciate another 6%. Currently we cannot seem to find anything, any news or figures, which can provide the Dollar with this additional boost.

Studies of the shorter term Swiss Franc charts reveal the possibility of the Dollar and the Euro being overbought against the Swiss Franc. Also, on balance, it looks like the Japanese Yen should be sold against the Euro and the Swiss Franc.

Basically, all we are looking for (and are 90% confident of getting) is a decent correction of the trend to anywhere between 1.44-1.46 over the next 2 months. Thereafter, the Dollar can resume its strength and move on to Parity on EUR-USD and to 1.60 on USD-CHF.