pair to range trade

Yesterday’s volatility on the back of broader risk aversion lead to several breakout’s-leaving very little range trade opportunities. The EUR/CHF’s unusual overnight price action has created a potential opportunity as it cemented a level of support. At last approach of the prior swing low Swiss policy makers saw fit to depreciate the local currency against the Euro as its continued appreciation threatened curb demand from its largest consumer and increase deflationary pressures.

Trading Tip – Yesterday’s volatility on the back of broader risk aversion lead to several breakout’s-leaving very little range trade opportunities. The EUR/CHF’s unusual overnight price action has created a potential opportunity as it cemented a level of support. At last approach of the prior swing low Swiss policy makers saw fit to depreciate the local currency against the Euro as its continued appreciation threatened curb demand from its largest consumer and increase deflationary pressures. Two unusual spikes in price action over the past week should be viewed as warning shots from policy makers for a larger scale of manipulation. There also exists the possibility that the SNB is merely attempting to discourage further bullish Franc sentiment, which appears to have had the intended effect amongst retail traders where longs are currently 12.7 times shorts. However, today’s immediate retrace demonstrates the difficulty for sustainable momentum without willing participants to take counter positions, which could limit upside potential if broader bearish Euro sentiment persists.  A clean break above the 20-Day SMA at 1.4725 should be viewed as a bullish sign as the pair has held below the technical level since December 16th.

Event Risk for the Europe and Switzerland

Europe – The upcoming economic calendar is dotted with second tier indicators ahead of Friday’s GDP release. German retail sales and trade figures bear watching as continued growth in the region’s largest economy is always a positive for the single currency. The ECB monthly report can be impactful, but will mostly likely present similar rhetoric to that following this week’s rate decision, where policy makers offered nothing new. President Trichet stated that the central bank continues to see current rate “appropriate” as growth and inflation risks are “broadly balance”. The upcoming advance reading for fourth quarter GDP could have the most market moving potential. The growth figures could reflect concerns that dissipating government stimulus will begin to have an impact on global growth. A drop in demand from abroad will weigh on the export depend countries. Additionally, if we see a greater divide between the largest economies (Germany, France and Italy), current concerns over budget troubles will persist.

Switzerland – Swiss fundamentals typically have little influence on the pair’s price action which could be reduced further with the threat of intervention. Standing on its own the calendar is full of significant releases with the headline labor, consumption and inflation reports scheduled. The focus for traders will be the Consumer Price Report as deflationary concerns are another reason for policy makers desire to limit the Franc’s appreciation.

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