A Profitable Forex Trade due to Economicsby Boris Schlossberg
Consistent disparities in economic performance can sometimes offer very profitable trades in currency crosses. A case in point is the price action in the second half of 2005 in the EUR/CHF currency cross. The massive declines in the two currencies during the first half of 2005 were beneficial for both the euro zone and Switzerland since both regions are heavy exporters and both generate substantial trade surpluses. However, the smaller and more nimble Switzerland did not suffer from the political and institutional disarray that pervaded the euro zone after the rejection of the EU Constitution in the summer of 2005. With much better unemployment numbers (3.8% in Switzerland vs. 9.9% in EU) and faster growing retail sales (4.7% vs. 0.9%), Switzerland was clearly outperforming its much larger neighbor next door. As the realization of this fact began to permeate the market, the EUR/CHF cross (one of the least volatile crosses in the market) declined by over 100 points in the period between late Sept and early Oct 2005. Remember, trading of forex poses significant risks and is not suitable for all persons. Past performance is not necessarily indicative of future results.