How to Profit from the Currency Wars

On 14th January this year, one of the biggest ‘battles’ in the long running worldwide currency wars broke out.

It took most investors by surprise.

And for many investors, not only did it take them by surprise, but it ended up costing them millions, and in some cases, billions of dollars in losses.

That event, that major battle, was when the Swiss National Bank ended its peg to the euro in January this year.

The Swiss had maintained a peg to the euro for three years. Why would they do that? It was all due to the European Central Bank’s (ECB) policy of devaluing the euro through money printing.

The ECB wanted to devalue the euro in order to help boost exports. It’s the same reason why the US wanted to devalue the US dollar by printing more.

The trouble for Switzerland is that a devalued euro would mean an increase in value for the Swiss franc. The Swiss feared that would result in a drop in exports and harm the Swiss economy.

So the SNB pegged the Swiss franc to the euro. It meant that as the ECB printed euros to devalue its currency, the SNB would have to actively sell Swiss francs in the foreign exchange market, to push down the value of the franc.

That too would involve printing money.

But suddenly, in January this year, the SNB gave up. The ECB announced that it planned to open up a new money printing program, and the SNB realised it just couldn’t keep pace.

So they decided to unpeg the Swiss franc from the euro. The impact on the currency markets was huge. As Business Insider reported at the time:

Hedge fund manager Marko Dimitrijevic is closing his largest hedge fund, Everest Capital’s Global Fund, having lost almost all its money after the Swiss National Bank (SNB) scrapped its three-year-old cap on the Swiss franc against eh euro, Bloomberg news reported on Saturday.

Citing a person familiar with the firm, Bloomberg said the fund had been betting that the Swiss franc would decline. The fund had about $US830 million in asset at the end of 2014, according to a client report cited by Bloomberg.

The chart below gives you a clue to when the SNB abandoned the peg. See if you can spot it…


Source: Bloomberg

The Swiss franc appreciated by 23% over the euro in 24 hours.

It was a stunning move. As the report above highlights, some funds lost a bundle on it.

But, not everyone lost. There were plenty of savvy investors and institutions that made a killing on the SNB move.

As Fortune noted just two weeks later:

Banks are finding their way around the Volcker Rule in some unexpected ways. JPMorgan’s recent windfall off the Swiss franc — and Citi’s loss — is testament to that fact.

Earlier this month, traders at the nation’s biggest bank made $300 million in one day, following news that the Swiss central bank was taking its cap off the franc. That caused the currency to soar, and JPMorgan traders took the move, literally, to the bank.

Why did the Swiss franc move this way? Because of the global currency wars.

Now, events of this extreme nature are abnormal. They don’t happen all the time. But other events, mostly of a smaller nature, do happen…and they happen more often than you may think.

And not just in the currency markets either.

Look at the following chart. It’s of the gold price in US dollars.

From late December to mid-January, it moved nearly 11%.


Source: Bloomberg

Why did gold go ballistic like this? Because of the global currency wars.

Cop a look at another chart, this time of the Brazilian real. It moved 27.8% in just two months:


Source: Bloomberg

Why did this happen? Because of the global currency wars.

From March to April this year, Brazil’s IBovespa index gained 20.2%.


Source: Bloomberg

Why did it do that? Because of the global currency wars.

In 2013, Indonesia’s main stock index fell 23.6% in three months. Why? Because of the global currency wars.


Source: Bloomberg

Look at any of the charts I’ve shown you and you’ll see big price movements over relatively short periods of time. Many of these are a result of the global currency wars.

It’s these price movements, related to the currency wars, that we’re targeting with a brand new trading advisor, Currency Wars Trader.

Just note one thing. Even though this service aims to help folks profit from (or protect their wealth from) the global currency wars, it doesn’t involve currency trading.

This new service aims to help investors and traders profit from the currency wars without actually trading in currencies themselves.

It’s a unique trading service. It doesn’t involve technical analysis. And if you so choose, it doesn’t have to involve leverage either (although if you want to sensibly employ leverage, we’ll show you how).

And it’s not fundamental analysis in the traditional way either. Our strategist and analysts aren’t looking at company balance sheets and profit and loss statements as you’d expect.

This is what I call ‘macro-fundamental’ analysis. It’s looking at the big economic news and events, looking for hidden triggers within the market, using our strategist’s unique approach.

After the strategist has identified these triggers and signals, it’s then up to the analysts to apply that to a specific investment idea.

That will involve buying or selling a particular type of investment that they believe is best placed to profit the most from an expected move.

It’s sure to be controversial. This is a strategy that until now has been unavailable to the ordinary investor. But now, as the global currency wars gain hold, and have an ever greater influence on the markets, it’s only right that we make this strategy available to you now.

Cheers,

Kris

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Money Morning is Australia’s most outspoken financial news service. Your Money Morning editorial team are not afraid to tell it like it is. From calling out politicians to taking on the housing industry, our aim is to cut through the hype and BS to help you make sense of the stories that make a difference to your wealth. Whether you agree with us or not, you’ll find our common-sense, thought provoking arguments well worth a read.

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