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February, 2015

As the experts of Forex traders well know, the prerequisite to have an almost sure gain is to enter in the market by following a very pronounced trend of a currency, or a pair of currencies. The main problem that concerns the trend towards which tends a certain currency, is its duration. It's not always easy to predict the change in the trend of the currency. Consequently, the duration of the trend in its unidirectionality, in a certain period of time is important to have success during the investment. The most careful traders observe and analyze the market situation before proceeding. Usually, this is the period of observation ranging from seven days to a month, the time sufficient to verify that a trend is stable, that goes in one direction. If we consider a long period, the probability of entering in an unstable time of the market is much lower compared to a short period. The ultimate half of last year has given us a continued fall of the euro against the dollar, exactly the situation that you can see in the graphic below.

Annual trend of the pair euro - dollar, from 2-5-2014 to 2-4-2015.

Since May of 2014, when it reached its highest price, the euro starts weakening, changing the slope of its descent, which still remained clearly defined, that is, downhill. In October and December, you could think that the trend came to the end but it was wrong as it is continued in an even more accentuated way. Without entering into further analysis and looking at the graphic, more precisely its downward trend, we see that it was enough to buy dollars and then selling them at most twenty days later, in the worst of cases (end of June-mid July), to have a gain.

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Towards the end of the year, the slope of the curve has become particularly steep, with a very short and mild change of graphic. This has allowed to many traders making incredibly high profits. At the end of the curve (end of January 2015) there is a potential turnaround and it seems that the euro is on the rise. Considering that this is a short period of about ten days, it is difficult to be sure that this long trend has come to the end. It is possible that this is a temporary compensation and profit taking by investment funds. Many analysts argue that the euro will continue to be down until it reaches parity with the dollar. This would mean still have a favorable long-term trend for forex operations.

Swiss Franc

In these days a potential new front has opened, the Swiss franc. Here, briefly, the reasons for the appreciation of the franc and the subsequent development of this new situation. After the financial crisis that dates back to 2008 and sees protagonist the United States, many investors have turned to the Swiss currency to ensure their capital as it has always been considered a safe and trustworthy currency. With the increase of demand, the value of the franc has been increasing, until almost reached parity with the euro. Having such a strong currency has caused concern in Switzerland. To be more specific, the problem are the exportations; their products and services have become more expensive every day. In 2011 this situation had become unsustainable, to the point of inducing the government to reduce the value of the franc (holding it at about 0.80 euro), simply by printing large amounts of money with which they bought euros.

In January of 2015 in the Swiss safes the money amounted about 500 billion euros. Such a large quantity of one currency can lead to unpleasant consequences and the great losses in the event of a money devaluation. In this scenario, the euro began to weaken globally and so has created a wide disparity of the franc against other currencies, particularly against the US dollar. These were two main reasons which forced the Swiss authorities to stop with their intervention and leave their currency to the fate of the market. The value of the franc has risen in one day of 20%.

Performance of the euro against the Swiss franc for a month, from 1-5-2015 to 2-4-2015.

The Swiss confederation was practically forced to make the decision to liberalize the currency, even if it has taken this step reluctantly. The solution they have implemented has led to a number of negative effects on their economy, those who sought to limit previously with the interventions in the money market. Certainly the government expects a fall in exports and a slowdown in the industrial sector. This situation can easily lead to an increase of unemployment. Taking into consideration the fact that more than two-thirds of their revenues come from exports, the country can have serious problems. Surely even the tourism sector will record negative numbers and here we are talking about another important branch of their economy. Considering all these facts, it is to be expected, after such a significant revaluation, that the franc will lose some of the value just acquired through the negative impact caused by the structural revaluation. In the diagram you can see that after a few days the euro started to recover some lost ground. The only question that remains is whether it will become a long trend, favorable for the forex traders.

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