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My June of 2008 Investment Pick

Discussion in 'Felix Long Term Investment Pick Archive' started by Felix Homogratus, Jun 16, 2008.

  1. Felix Homogratus

    Felix Homogratus Commander in Chief

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    Hi there :)

    This is Felix writing. I wanted to share with you my outlook for the month of June, 2008.

    I just recently sent in an order to my bank to go short on GBP/CHF. In my opinion, considering the current circumstances, the strongest currency out of the 8 majors is Swiss Frank, and the weakest is Great British Pound.

    I actually initially called a short on GBP/CHF back in December of 2007. During that time, everybody was being crazy about shorting GBP/ JPY, which was definitely a good thing, but I remember talking over the telephone with my partner Sir Pipsalot, who is running the ForexDiamonds.com service, and I told him that I think a short on GBP/ CHF is even better than a short on GBP/JPY.

    Well, to make the long story short, in 2008, on global scale, Swiss Frank gained 7.19%, and Great British Pound lost -3.07%. In comparison to Swiss Frank, the Yen only gained 0.48%.

    Yep, it seems like everybody was talking about the strong Euro and strong Aussie in 2008, but in reality, Swiss Frank outperformed them both. Here are the detailed statistics on all 8 currencies:

    CHF: +7.19%
    AUD: +5.72%
    EUR: +4.08%
    JPY: +0.48%
    USD: -2.32%
    GBP: -3.07%
    CAD: -5.18%
    NZD: -5.19%

    Looking at these statistics, you may be wondering how in the world I came up with these numbers? Well, the way I came up with them is I compared each currency against the 7 other currencies, then I derived an average from that. This way, we can not only know how a currency performed against one other currency, but we can know the average against all the other 7 majors.

    I actually requested a programmer to build me a calculator to do that. This way I could see in one snapshot the overall picture for today or yesterday, or for last week, or last month, or any custom date. And we are actually going to offer this calculator as free tool for our ForexPeaceArmy community. Wait for an announcement on that sometime this month. I believe this tool would improve your trading.

    Anyway, sorry about that, it seems like I got a bit carried away here. Let's go back to our GBP/CHF short.

    Here is the situation. The UK economy has been put in a tough situation. Their inflation is going up, while their overall economy is slowing down. So there has been a lot of uncertainty about the UK interest rate which is at 5.00%, which is still very high, comparing to the rest of the world.

    So what has happened, is in the month of June, GBP has actually gained value, because there were speculations of further rate hikes. You may be surprised to hear that, because it seems like GBP/USD is going down. The reason it's going down is that US dollar has gained even more value than GBP. But if you compare GBP against all the other 7 majors, and derive an average, it's actually gained around 1.06%, just in 10 days, which is a lot.

    So to make the long story short, the market is currently pricing in rate hikes from the UK, which are highly unlikely, so if there is a cut in the next 3 months, it would be a big surprise, and the pound will lose a lot of value.

    On the other hand, the Swiss government seems to be very happy about their interest rate of 2.75%, and the market is still pricing a possible cut by the end of the year. Regardless of it, the CHF has gained 1% in May, and already gained 1.86% in June comparing to the average of the other 7 majors.

    So we are definitely seeing a solid trend of falling pound, and solid trend of rising Swiss Frank. Please note that the pound is falling, despite their high interest rate, and if they cut, it would only aggravate the fall. On the other hand, the Swiss Frank is rising, despite the fact that there are talks about possibility of rate cut by the end of the year. So if they decide to stay on hold, or even hike, it would only put fuel into already rising frank.

    I hope I am making sense here, and of course once that calculator is posted, you will be able to have a very invaluable tool to your trading.

    That's all I have to say for this month. Next month, July, one of my friends who is managing a fund of several hundred million promised to write up his take on the forex market :) I personally look forward to that analysis.

    What do you think about what I said about Pound and Frank? I'd love to hear your feedback and your 10 cents on the issue.

    Thanks :)
    -Felix
     
  2. ldshaw

    ldshaw Recruit

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    I agree that CHF has been gaining, particularly against other European currencies. This seems like a trend that will continue for some time. As for USD/CHF, this is a tougher read. The trend has been toward strengthening of USD since March, and I see little reason for this to change in the near future.

    GBP will probably continue to lose ground against USD, however, much of the strength the three major European currencies vs USD will depend on our stock market and the price of oil. As oil falls, so goes EUR and CHF, and to a lesser extent, GBP (vs USD). The same has not been true as oil climbed recently. The recent record highs for oil have not been matched by record levels for EUR, CHF or GBP. One would think the tide is turning.
     
  3. ernest8fingers

    ernest8fingers Master Sergeant

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    Right on the money!

    Not sure about the swiss frank-but the GBP is weaking for sure! This great country will be the next to feel the global currency meltdown! Their credit problems have only just begun.They will (WILL) lower their interest rate and this will have a negative effect on their currency value across the board.The technicals show this and it is only a matter of time. The high cost of energy(oil) will only add to their weakening currency.
     
  4. Packman

    Packman Recruit

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    I absolutley love your insight. I just put my short order in also. Do you happen to have a target price? Thanks!
     
  5. KPI

    KPI Recruit

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    Thank you for sharing it.
     
  6. Huskins

    Huskins Former Special Consultant to the FPA

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    Felix
    I agree with you... I have bought Long calls on the Chf an dI belive with the next round of the Financial cris GBP will looses a lot of strenth, So Short GBP/CHF whopuld be a good paid.


    However I would recomend that you also provide Extries and exits or at least Stop loases, with an assupption that a person has a 10,000 $ account.

    If some body has $1000, they would simply do 1/10 of what you are saying and if sombe body has 100,000 they could invest 10x
     
  7. loisa

    loisa Recruit

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    Thank you!

    Wow, I'm fairly new at this but that seems like a brilliant anayisis to me. I'll be watching and I'm sure trading with that trend.
    Felix, what a guy! It's rare to find someone who understands there is enough to go around for everyone!!

    So, thank you for the generous sharing of your own work --it's a beautiful thing.

    The program/ tool sounds incredible --what a cool idea. Looking forward to it!!

    Happy Girl :)
     
  8. santana

    santana Recruit

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    Felix, is an excellent search; just combined with your acknowlege & experience is possible to has the right result. Specially creating that program for monitoring all the currencies at any time. I believe is a very valuable tool.
    Congratulations for your vision in this business and we can count with a person like you.

    King regards,

    Santana
     
    #8 santana, Jun 16, 2008
    Last edited: Jun 16, 2008
  9. damonl

    damonl Private

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    well let's see.....

    it seems to me that you are thinking that gbpusd will fall faster than usdchf will rise. this may be correct on a day to day basis, but could be that usdchf will have smoother price action.

    unless at the same time you are thinking that the euro will gain value over the usd and i am not convinced that this is in the short nor medium term outlook.

    might end up being a good trade, but it will need help from a ranging usdchf pair and may still be a bumpy ride down.:)
     
  10. chriis

    chriis Recruit

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    Thanks Felix, please keep this up. I love your monthly picks
     

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