When last CHF/JPY saw a 116.00 price was 117.06 February 1983, nearly 31 years ago. February 1983 also saw USD/JPY at 235.91 and USD/CHF 2.0153. All 3 pairs for the most part are in a historic downtrend since October 1974. Why? Smithsonian Agreement, Louvre and Plaza Accords. All three explains why my data and forecast encompasses 1985 to present day.
The December 1971 Smithsonian Agreement proposed by US President Nixon and agreed by the G-8 nations under the auspices of the IMF allowed a devaluation of the US Dollar by raising the Currency Gold Peg to $38 from $35 an ounce and allowed currencies to trade in a 2.25 or 2 1/4 band against each other.
Central Bank interventions was first sanctioned by the IMF in Article 4 of the agreement, quite ironic as the 1936 Tripartite Agreement to limit competitive currency devaluations was eliminated by the IMF sanction. Not since the 1944 Bretton Woods Fixed exchange rate system had the world allowed floating exchange rates however miniscule was the trading band. But the system broke down as can be seen from above prices due from high inflation, out of sync current account balances and interest rate advantages, the game was buy USD against all other currencies because most nations still pegged their currencies against USD so hence why the Plaza Accords.
Plaza Accords in September 1985.was agreed again by the G 8 to now cool off the high USD price. The hope was to yet again weaken the USD. The difference between 1971 and 1985 is nations were moving to a complete unpeg of their currencies against their USD counterpart in favor of a free float, Australia and New Zealand are two examples that come to mind. We essentially were moving to a sanctioned free float currency market. But as USD/JPY as one example traded at 251 during this period, the agreement was a failure.
Louvre Accords was an economic agreement with hope for nations to not only agree to stabilize their exchange rates but to cut taxes ( France) cut interest rates, reduce current account surpluses ( Japan), cut spending ( Germany). A variety of agreements were signed to no avail. So herein lies our modern day currency market and why CHF/JPY was viewed from 1985 to present day. Prior 14 year currency markets was a one way street, and that street eccompassed buy USD against all other currencies.
To read agreements, www.avalon.law.yale.edu, Further Recommended reading The Gold War: Davidson and Weil.
CHF/JPY. Since 1960, the comfort zone for CHF/JPY prices lies between 70.00 to 90.00 despite the period from October 1974 to January 1980 where a low of 103.20 in October was seen to the historic highest high in January at 149.18. CHF/JPY is experiencing a spike in a larger downtrend that will again someday see its price comfort zone between 70 -90. That spike is based not on interest rates as is normally the value for any exchange rate but a speculative bet that the ABE Govt will meet its 2% Inflation target. its a pure speculative bet based strictly on fundamental factors rather than focus on technical overbought conditions in JPY and CHF/JPY. Should Abe fail as did all past 11 Japanese economic experiments, JPY prices will fall fast and hard.
Based on a 28 year average, we are unbelievably far overbought. My sell points are 116.10 and 116.79 that also coincides with an intraday sell point at 116.76. Targets are 113.97, 111.82 and 111.32 then 107.41. The distribution average from 116.79 - 103.32 is 109.37. 109.37 and 105.23 must break to see lower prices back to the comfort zone.
What lies above is 118.41, 119.27 and 121.76. 118.41 is the bottom of the 15 year average while 121.41 is the bottom of the 28 year average. If 118.41 breaks higher, prices on a 5, 10 and 15 year basis literally can't easily be calculated anymore. Our only fallback point is the 28 year average.
Despite wildly overbought, the most extreme prices can conceivably see is 126.73 and 127.72. But these are extremes I never enountered before to be honest and not without a healthy pullback to allow averages to catch up with themselves. A move of this caliber will take quite some time. To place 127 CHF/JPY in context, USD/JPY currently has a target of 113.25 but if 104.55 breaks higher, new targets become 119.55 but only if ABE succeeds.
If USD/JPY is viewed in its historic context, it was first introduced after WW 2 at 360.00, 1/2 is 180.00 so its a multi year correction unfolding.
Above resistance points: 116.10, 116.76, 117.82, 118.41, 119.06, 119.27, 119.90, 121.31,121.41, 121.76,
below 115.53, 114.73, 114.58, 114.07, 113.50, 113.97,
Brian Twomey, Inside the Currency Market, www.btwomey.com