As former technical strategist for Lehman Brothers Fixed Income, I fully appreciate that fundamental research takes precedent in most quarters of the investment community, particularly within the equity world. However, with alternative investment managers, an understanding of major technical developments is important, and most like to keep abreast of the charts to help support other research and opinions. Therefore, I would appreciate sharing some recent developments for the USD that should have a major impact on the capital markets in 2008.
For purposes of this discussion, we are focusing on USD/CHF, as the Swiss Franc is the currency best correlated to gold prices. This article should help support the opinion that gold will continue to appreciate, supporting the related ETFs, as well as mining stocks in general. Some other negative implications for US assets can and should be considered as well.
Fundamentally, there are many factors that have contributed to the recent decline, already well known. USD/CHF has already lost -40% of its vlaue after reaching 1.8313 in 2000, trading just below 1.0900 as of this writing. While already a massive decline, I would argue that a larger bear trend for the USD is just beginning. The past 3 months of price action places the USD below chart levels set in 1995 and 2004, 1.1172-1.1286, breaking the low end of a very long term range. This suggests that a new major bear trend has just started.
The USD/CHF range is highlighted in a monthly chart here, USD/CHF Breaking Major USD Supports, having been largely in place since 1986. From a traditional technical perspective, a breakout of a range will achieve a measured target equal to the width of that range. The width of this range is 71 big figures for USD/CHF, a target that is unimaginable at this time. For now, I would suggest that a channel low targeting .8210 should be attainable in 2008. That is an additional decline of -25% for USD/CHF from current levels.