Euro/Swiss Buy Recommendation Issued for Tuesday Trading Session

FUNDYS

It is the final day of trade for the month and so far things have been in risk off mode with the Yen and Swissie leading the way as safe-haven flows dominate. Although the moves haven’t been severe at this point, they are certainly getting the attention of investors who are seeing Eur/Chf break to yet another record low by 1.2900 and Usd/Jpy just off of its multi-year lows. Any forms of verbal intervention efforts on behalf of Japanese officials are now being ignored and the markets have reverted to a buy the Yen until proven otherwise mentality.

Relative Performance Versus USD Tuesday (As of 9:30GMT)

1. SWISSIE+0.75%
2. YEN+0.31%
3. EURO +0.13%
4. CAD+0.06%
5. AUSSIE-0.28%
6. STERLING-0.30%
7. KIWI-1.16%

This same logic holds true with the Swissie, which has also continued to appreciate over the past several months despite official intervention efforts by the Swiss central bank. More recently, the SNB announced that it would be pulling back from intervention and did not see any serious or concerning threats to deflation, and this has helped to accelerate gains in the Swiss Franc. Nevertheless, we would be extremely wary of adding to Yen and Swissie longs at current levels as it seems things could be coming to a head real soon. In fact, we will be looking for opportunities to sell Yen and Swissie on overextended intraday moves.

Elsewhere, of the three weakest currencies on the day, the Australian Dollar has been the relative outperformer thus far, with a round of solid data highlighted by stronger retail sales and building approvals, managing to somewhat mitigate the setbacks from the broader wave of risk selling in the currency. The New Zealand Dollar hasn’t been as lucky as its antipodean cousin and is by far the weakest currency on the day, with the market coming under added pressure on the news that South Canterbury had gone into receivership.

Meanwhile, Sterling trades marginally lower despite a decent round of data which included better than expected consumer confidence and mortgage approvals. Although the Euro has come back under a bit of pressure into Tuesday, the key level to watch comes in by 1.2585, and a break will be required to officially open the next downside extension. Eurozone data releases have failed to factor into price action with German unemployment, Eurozone unemployment and Eurozone CPI estimates all coming in broadly in line with expectation.

Looking ahead, Canada GDP (0.2% expected) is due at 12:30GMT, followed by US Case Shiller (0.35% expected) at 13:45GMT. Chicago PMI (57.5 expected) is then out at 13:45GMT immediately followed by consumer confidence (51.0 expected) at 14:00GMT. The calendar then pauses for a few hours before seeing the release of the Fed Minutes at 18:00GMT. US equity futures and gold prices are trading moderately lower, while oil is the big loser on the day, down by some 1.50% ahead of the North American open.

GRAPHIC REWIND

TECHS

EUR/USD: The latest bounce out from 1.2585 is classed as corrective and the market looks to be in the process of seeking out the next lower top below 1.2925 ahead of a fresh drop towards 1.2500 further down. Monday’s bearish price action helps to reaffirm outlook, and a fresh lower top below 1.2925 could now be in place by 1.2780. Look for confirmation on a break below 1.2585 over the coming sessions, while ultimately, only back above 1.2925 would negate and give reason for pause.

USD/JPY: While the market trades below the 20-Day SMAs on a close basis, the downtrend remains intact and deeper setbacks below 83.60 can not be ruled out. A close above the 20-Day SMA will be required at a minimum to offer some form of relief to downside pressures. The market has not closed above the 20-Day SMA since mid-June when the pair was trading over 90.00. A break below 83.60 will open a test of next key psychological barriers by 83.00.

GBP/USD: The market looks poised for a fresh drop following the latest bout of consolidation, with a lower top now sought out by 1.5600, to be confirmed on the break back below 1.5370. Below 1.5370 then exposes a more meaningful drop to test next key medium-term support by the 100-Day SMA in the 1.5100 area. Ultimately, only back above 1.5700 would negate bearish bias and give reason for pause.

USD/CHF: Has managed to break to yet another multi-week low below 1.0300 to open a fresh downside extension towards the yearly lows from January by 1.0130 over the coming sessions. However, any additional declines below 1.0130 are seen limited, with medium-term studies looking stretched. As such, we would be more inclined to be looking for opportunities to buy at current levels. For now, a break and close back above 1.0320 will be required to relieve immediate downside pressures.

FLOWS

Middle Eastern sovereign names on the bid in Gbp/Usd. Sell orders in Usd/Jpy in the 84.50-80 area; talk of option barriers at 84.00 and 83.50. Month end flow related demand for the USD across the board. Some buy-side interest in Eur/Chf.

TRADE OF THE DAY

Eur/Chf: The cross rate has been under some intense pressure over the past several months, with the market accelerating declines and dropping to record lows below 1.3000 thus far. However, it is not too often where we see daily, weekly and monthly technical studies all showing oversold at the same time, and this warns of the potential for a major upside correction over the medium/longer-term. As such, we like the idea of building a meaningful long position below 1.3000 with any additional setbacks seen limited. STRATEGY: BUY @1.2875 FOR AN OPEN OBJECTIVE; STOP 1.2775. RECOMMENDATION TO BE REMOVED IF NOT TRIGGERED BY NY CLOSE (5PM ET) ON TUESDAY.

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Written by Joel Kruger, Technical Currency Strategist for DailyFX.com

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