Market Setup of the Day: Pairing the Strength of the Swiss Franc vs. the Weakness of the Argentine Peso


Pairing the Swiss Franc (CHF) with the Argentine Peso (ARS) has the potential to see the the CHF leverage gains over the ARS. Confidence is what moves markets. The banking regulators of Switzerland's banking industry have recently received a healthy dose of confidence. This occurred when the Swiss regulators imposed fines on several major banks for their part in manipulating LIBOR rates. LIBOR is a benchmark rate that some of the world's leading banks charge each other for short-term loans. The acronym stands for Intercontinental Exchange London Interbank Offered Rate and serves as the first step to calculating interest rates on various loans throughout the world.

The Swiss competition commission (COMCO) recently reported a list of fines for global banking giants after completing investigations into the manipulation of benchmark interest rates between 2006 and 2010. The financial regulator has been examining five distinct cartels involved in rigging the Swiss Franc LIBOR, Yen LIBOR, Euroyen TIBOR, EURIBOR, and spreads on Swiss Franc interest rate derivatives.

Since 2013, the regulators have announced fines of CHF 99 million (US $97 million) stemming from settlements with seven major banks. JPMorgan ( JPM ) attracted the largest fine amount of CHF 38.1 million (US $37 million), followed by a fine of CHF 29.8 million (US$29 million) for Barclays ( BCS ) and CHF 17.1 million (US $16.7 million) for RBS ( RBS ).

This could be interpreted as a confidence builder, because the banking giants appear to be lining up to pay the fines. There are not any reports as yet of any of these institutions challenging the penalty that has been imposed on them.

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On the other hand, Argentina's economy shrank in the third quarter, continuing its recession as inflation ate into consumer purchasing power. Weak activity with Brazil, its top trading partner, also hurt manufacturing, according to government data. Cumulatively, the economy fell 2.4 percent during the first three quarters of this year compared with the same period last year. "This confirms that the recovery has been delayed longer than we expected," says Alejo Costa, chief strategist at Buenos Aires-based brokerage Puente.

Growth can be considered to have been elusive during the first year of President Mauricio Macri's administration. Since taking office last December, Macri has implemented free-market measures to stimulate the economy and lure foreign investment.

The combination of these scenarios may create the relationship we seek in Forex trading, pairing the strength of the CHF with the weakness of the ARS.