Both armies were able to break the enemy’s flag alphabet throughout the war.
At the Battle of Chancellorsville, Union intelligence officers knew the
Confederate flag alphabet and discovered through intercepted messages that
the rebels were also reading the Union signals. This put Gen. Joseph Hooker
in an enviable position, because the Confederates did not know he knew their
flag alphabet nor did they know that he was aware they could read his. In the
end, however, the intelligence coup did not help, and Hooker was badly
defeated. It also appears that the Confederates managed to break Myer’s disc
cipher, because Robert E. Lee gave copies of the Union flag alphabet to his
corps commanders during the Petersburg Campaign.

from
http://opinionator.blogs.nytimes.com/2013/03/14/the-codes-of-war/?nl=opinion&emc=edit_ty_20130315