Swiss Franc Continues with Relentless Pace; Fresh Record Highs

• Safe-haven buying persists in early weekly trade
• Swiss Franc to fresh record highs against Eur, Gbp and USD
• Kiwi immune to risk liquidation on higher inflation data
• Emergency EU Summit meeting and US debt ceiling discussions in focus

The new week has kicked off with some wild price action and recent overdone trends have continued to show just how relentless they can be, with the Swiss franc rallying to fresh record highs against the Euro, Pound and US Dollar. A combination of safe-haven demand along with some less favorable economic outlooks in the Eurozone, UK and US, and a relatively solid Swiss economy have helped to fuel the strength in the Franc, and this market still shows no signs of let up just yet despite screamingly overbought technical studies. However, we would continue to warn of a potential sharp corrective reversal with official speak on the moves in the currency likely to emerge should things persist.

Meanwhile, the Yen also has been very well bid, but to a lesser degree, and here too we see risks for corrective selling in the outperforming currency. Elsewhere, Kiwi price action confounds, with the higher yielding antipodean seemingly immune to any form of weakness, even in the face of a softer global macro environment which has exposed risk correlated assets. Nzd/Usd sits by 30-year highs, while the Aud/Nzd cross has collapsed to fresh multi-day lows. New Zealand economic data has been very solid of late, with the previous week’s GDP data coming in well above expectation, and this in conjunction with Monday’s higher than expected inflation print, has opened the door for more speculation of an RBNZ rate hike, and therefore a higher local currency.

Although the results of the European bank stress tests were not as bad as they could have been, the fact that we still did see 8 bank failures, coupled with unresolved Eurozone debt issues and a worrying US debt ceiling situation, have not left investors with a good taste in their mouths and the elevated levels of uncertainty should continue to pressure risk correlated assets going forward. The emergency EU summit scheduled for Thursday will attempt to reach an agreement on yet another bailout plan for Greece, but there are still a number of skeptics out there who doubt that such a resolution will be achieved. And over in the US, the US debt ceiling deadline fast approaches and here too there is no feeling of any comforting resolution. These two storylines will likely dominate trade over the coming sessions and should have a major influence over directional movements.

Looking ahead, the economic calendar on Monday is anemic, with no releases seen in European trade. The only release of note for the region has already come in the form of a discouraging UK Rightmove house price showing. But once again, economic data is seemingly less relevant given the more pressing macro themes and we would expect these major storylines revolving around the Eurozone debt crisis and US debt ceiling to continue to dominate trade. Other things to watch out for over the coming session are price action in the Franc (as we have mentioned above) and potentially some weakness in Kiwi despite stronger data, with the market to likely eventually feel the pressure of a flight to safety market environment. US equity futures are already tracking a good deal lower on the day, while oil trades flat and gold remains well bid by record highs.

ECONOMIC CALENDAR

TECHNICAL OUTLOOK

EUR/USD: Overall, price action remains quite bearish and we continue to like the idea of selling into rallies in anticipation of a more sizeable pullback below the 200-Day SMA. The longer-term moving average resides by the 1.3900 figure and a clear break below will open the door for a test of next key support in the 1.3750. In the interim, look for the formation of a fresh lower top somewhere ahead of 1.4400. Last Thursday’s topside failure by a convergence of moving averages just under 1.4300 could very well offer itself as a strong candidate for this next lower top.

USD/JPY: The latest daily close below 79.50 certainly compromises our constructive outlook with the market breaking down below some solid multi-day range support in the 80.00 area and dropping into the 78.00’s thus far. This now puts the pressure back on the downside and opens the door for a retest and potential break below the record lows from March by 76.30. At this point, a daily close back above 80.00 would be required at minimum to relieve downside pressures.

GBP/USD: We classify the latest price action as some consolidation ahead of the next major downside extension with the market now looking to establish back below the 200-Day SMA and extend declines through next key support at 1.5750 further down. In the interim, look for any rallies to be well capped ahead below 1.6250 on a daily close basis. Back under 1.6000 helps to confirm and should accelerate.

USD/CHF: Despite the intense downtrend resulting in recently established fresh record lows below 0.8100, short/medium/longer-term technical studies are looking quite stretched to us, and we continue to like the idea of taking shots at buying in anticipation of a major base. Aggressive bulls may want to look to establish fresh long positions ahead of 0.8000, while conservative counter-trenders will want to wait for a daily close back above 0.8200 at a minimum.

Written by Joel Kruger, Technical Currency Strategist

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