The currency markets have always demonstrated a volatile response to either scenario be it peace, rumors or war


Mar 24 - 30, 2003




Historically, the dollar vs. the Swiss Franc Faso has been the purest dollar play. Switzerland's currency is widely viewed as a safe haven due its high liquidity and the a political nature of the country. Since February this year the dollars movement against the Swiss Franc has almost directly followed the US stock markets downturn. USD/CHF habitually goes in and out in a strong correlation with the Dow Jones Industrial Average (DJIA). Currently the dollar appears undervalued versus the Swiss Franc due to the unrest between the US and Iraq.

The currency markets have always demonstrated a volatile response to either scenario be it peace, rumors or war. Life goes on in a typical trend so does the financial market, the paragon boom, recovery and recession. History always repeats itself, the record of the extreme response in USD/CHF after the first air strikes of the Persian Gulf War. The dollar rose to 26% from January to June 1991 after experiencing a gradual decent the three-month build up of coalition forces. Equity markets experienced a 20% rise during the same time frame.

Currently we are experiencing similar situation that we had during the 1991 Gulf war, The USA raised the profits at every stage of the conflict, determined to maintain the initiative and to stamp its authority on international affairs. Each time someone mentioned peace, the Americans pushed harder with their policy of war. President Bush events in Iraq have now reached the final days of decision. For more than a decade, the United States and other nations have pursued patient and honorable efforts to disarm the Iraqi regime without war. That regime pledged to reveal and destroy all its weapons of mass destruction as a condition for ending the Persian Gulf War in 1991. Since then, the world has engaged in 12 years of diplomacy. They have passed more than a dozen resolutions in the United Nations Security Council and sent hundreds of weapons inspectors to oversee the disarmament of Iraq

We have similar situation what we had in 1991, when dollar was getting weak against the major currencies when diplomacy was taking place and we have been to a similar situation this time only readers would confirm the idea with Euro's strength in local market as well, until recently during the course of a possible war market start to believe that there would be an attack and it would be very short lived this time only, and on the fact that if US manages to manages to remove Saddam's regime that would help the ailing US economy.

As far as dollar is concern, if readers consider the above chart they would agree that after testing a bottom of 1.32level against Swiss Franc, dollar is retracing. Every stick on the chart depicts a single days price pattern, and last 7 days suggests (this is pre-attack situation) that dollar is buying more Swiss Franc then what it was seven days back.

Consider the fact that this is only the pre-attack formation of the US unit, what if US manages to change Saddam regime, if they manages to control the Iraq for the time in which they will build the country, what does it mean to American firms? If American firms do better US stocks would get a lift and dollar as well. Though this idea only holds true if this war time span does not prolonged, inverse effects could be a possibility if situation turns out to be what we have discussed.