Franc At Critical Levels Ahead of Stress Tests
The USD/CHF has started to consolidate after a sharp decline which it lost nearly 1200 pips in June. Considering the size of the decline a case could be made for a retracement, especially with the lingering concerns over the banking system in Europe. The results of stress test performed on the region’s banks are expected to be releases on July 23rd. Signs that the banking system is too fragile to withstand another shock could spark Franc weakness and a significant reversal. We could start to see markets err to the side of caution and start to get bullish on the pair beforehand. A move above 1.0700 could inspire a cautious long position before the results. However, markets could react in a positive manner on the increased transparency similar to when the U.S. released their results, especially if they show that European banks are on solid footing. Therefore, I would expect Franc support and the continuation of the current bearish rally, and would look to get short with a break below 1.0500.
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