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EUR/CHF Descending Channel Provides Swing Trading Opportunity

EUR/CHF Descending Channel Provides Swing Trading Opportunity

2011-02-15 21:13:00
Christopher Vecchio, CFA, Sr. Currency Strategist
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Seen as a risk-on, risk-off pair gauge for Europe over the past few months, the EUR/CHF has appeared to have completed its most recent advance. When sovereign debt concerns ramped up at the end of 2010, the EUR/CHF eroded quickly; when it became clear that more debt relief would flow into struggling European nations, the EUR/CHF pair rebounded. Accordingly, after hitting significant technical resistance over the past few days, and with sovereign debt concerns beginning to rise to the foreground again, the EUR/CHF pair appears poised to continue its decline in its descending channel over the next few weeks.

Levels to Watch:

-Range Top: 1.3366 (Trend)

-Range Bottom: 1.2288 (Trend)

eurchf_descending_channel_provides_swing_trading_opportunity_body_eurchf_1day.png, EUR/CHF Descending Channel Provides Swing Trading Opportunity

Charts created using Strategy Trader– Prepared by Christopher Vecchio

Suggested Strategy

  • Short: Place an entry at 1.2985 (20-SMA)
  • Stop: Set the stop to 1.3035 (50-pip risk)
  • Target: The first target is 1.2952 (50-SMA, move up stop to 1.3005), second target is 1.2905 (23.6 Fibo)
  • Timeframe:5 to 10 days

Trading Tip The EUR/CHF pair has been swing trading in a clear descending channel since the end of May. Recently, much of the direction has been dictated by fundamental risk. However, after touching the 38.2 Fibo at 1.32031 on the May 21 to January 10 move, as well as finding resistance on the 100-SMA, the EUR/CHF pair is running out of bullish momentum. Accordingly, the Slow Stochastic indicator has issued a sell signal, as the %K at 85.95 has crossed below the %D at 91.06.

Event Risk for the Euro-zone and Switzerland.

While the calendar looks empty for Switzerland for much of the week, economic data will be pouring out of the Euro-zone. With significant Euro-zone data already released earlier today, which missed expectations, the table is set for bearish sentiment towards the Euro. Data later in the week could be the final catalyst necessary to propel the EUR/CHF pair south in its channel.

Euro-zone – The Euro-zone had significant data released today, but the numbers were not up to par. 4Q GDP (QoQ) missed expectations at 0.3 percent (versus 0.4 percent anticipated), while the Trade Balance contracted by 0.5 billion in December after falling 1.5 billion in November. The Euro has been under significant pressures across all major currencies as a result. The next significant data release comes on Thursday.

Switzerland – Switzerland has very little event risk for much of next week, making this a candidate to adhere to its current technical bias. As I said on Friday, “Franc strength, however, could come in the middle of the week as Euro-zone GDP data for the 4Q is expected; a reading that highlights deteriorating conditions could cause investors to flee to the Franc for safe haven.” That came to fruition today as Euro-zone data disappointed, and with no event risk over the next 48 hours for either currency, momentum remains in the Franc’s favor.

Data for February 13 to February 18

Data for February 13 to February 18

Date

Swiss Economic Data

Date

Swiss Economic Data

Feb 17

Construction Output s.a. (MoM) (DEC)

Feb 17

Credit Suisse Zew Survey (FEB)

Feb 17

Current Account (DEC)

Feb 17

Consumer Confidence (FEB A)

Written by Christopher Vecchio, DailyFX Research.

To contact the author of this report, please send inquiries to: instructor@dailyfx.com

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

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