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How stable is the GBP/CHF Range? • Levels to Watch • The roots of the current range extend back to the beginning of 2009 which adds validity to the support and resistance levels. The upper bound has withstood several tests giving us confidence in our set-up. The upside barrier is being fortified by the 50.0% Fibo of 1.8094-1.5786 at 1.6940 which has turned away the most recent advance. Suggested Strategy |
Trading Tip – We had looked to take advantage of the test of the lower bound back in March although our set-up didn’t work at the time a patient traders would have significantly benefited by the ultimate test of the upper bound. Our current recommendation may require the same patience as we are dealing with a longer-term formation. Nevertheless, we can find support for our position in developing fundamentals as well. The new coalition government is scheduled to release an emergency budget on June 22 and the extent if the austerity measures could dim the outlook for U.K. growth providing us with the necessary follow through to make our trade profitable. Switzerland is more dependent on European demand but the franc has already been punished for its association and considering that the country is in a much better fiscal state it could be the sterling turn to feel the wrath of the markets as their credit rating comes under scrutiny.
Event Risk for U.K. and Switzerland
U.K. – The upcoming BoE rate decision is the upcoming major event risk for the pair despite expectations that the central bank will remain on hold. The MPC has left the door open for adding to their asset purchase program given the concerns over the impact on liquidity from the debt issues in Europe a surprise increase can’t be ruled out. However, a lack of action from policy makers could make it a non-event as post decisions statements are unlikely. The trade balance and industrial production reports will provide insight into the sustainability of the recovery. The U.K. has barely emerged from recession with growth of 0.2% and 0.3% the past two quarters and the potential remains to slip back to negative growth.
Switzerland – All of the upcoming Swiss fundamental releases are scheduled on the same day and all significant indictors for the health of the economy but may not posses any market moving potential. The most important may be the consumer price index as any signs that deflation is creeping back into the country could put the SNB back on alert for possible intervention. The central bank has given up the cause recently as their efforts were futile with the overwhelming bearish Euro sentiment. However, there may be enough money on the opposite of the trade to inspire action from policy makers.
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