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A Closer Look and Overview of the Latest Swiss Franc Price Action

A Closer Look and Overview of the Latest Swiss Franc Price Action

2011-09-06 11:08:00
Joel Kruger, Technical Strategist
Share:
  • Current massive overvaluation of franc posing risks
  • Franc appreciation posing deflation risks
  • SNB wont tolerate euro-franc moves below 1.2000
  • Will defend the FX target with utmost determination
  • Ready to buy foreign currencies in unlimited amounts

In an unprecedented move the Swiss National Bank (SNB) has announced a commitment to set a base on the Eur/Chf exchange rate at 1.20 in an effort to aggressively protect the economy from the effects of rapid franc appreciation in recent years. The SNB in the past has said that deflationary pressures would push them into action, and the re-emergence of such pressures is allowing for a stronger case for the central bank to implement these colossal measures. Up until recently, efforts to stem the appreciation in the currency had failed and it seems as though this latest campaign which began several days back brings with it a legitimate policy where actions are finally speaking louder than words.

Relative Performance Versus the CHF on Monday (as of 11:00GMT)

  1. EUR +8.44%
  2. AUD +8.10%
  3. CAD +7.91%
  4. NZD +7.80%
  5. USD +7.76%
  6. GBP +7.67%
  7. JPY +7.38%

TECHNICALLY SPEAKING

The move on Tuesday has been violent and dramatic on the technical front, with the sell off in the Franc triggering a more substantial structural shift in the medium-term and longer-term horizons. With Eur/Chf back above 1.2000 and Usd/Chf taking out critical topside resistance at 0.8550, look for these markets to continue to find bids over the coming weeks and months as the dynamic shifts. Longer-term studies still show plenty of room for additional weakness in the Franc, although from a shorter-term standpoint, the best strategy is to stand aside and look for opportunities to buy into Eur/Chf and Usd/Chf dips when the dust settles. This same logic holds true and can be extended to other Swiss related crosses.

TECHNICAL OUTLOOK

A_Closer_Look_and_Overview_of_the_Latest_Swiss_Franc_Price_Action_body_swiss1.png, A Closer Look and Overview of the Latest Swiss Franc Price Action

USD/CHF:The latest sharp reversal off of record lows just shy of 0.7000 is encouraging and could finally be starting to signal the formation for a major base. Weekly studies and monthly studies are also confirming with the formation of a very bullish bottom close. Tuesday’s acceleration of gains beyond critical resistance and a previous lower top at 0.8550 further confirms bullish bias and from here, we see room for fresh upside towards the 0.9000-0.9500 area over the coming days.

A_Closer_Look_and_Overview_of_the_Latest_Swiss_Franc_Price_Action_body_eurchf2.png, A Closer Look and Overview of the Latest Swiss Franc Price Action

EUR/CHF:The latest sharp reversal off of record lows just shy of parity is encouraging and could finally be starting to signal the formation of a major base. Weekly studies are also confirming with the formation with a very bullish bottom close. Tuesday’s dramatic break back above 1.1975 now officially confirms a fresh higher low by 1.1000, above the 1.0075 record lows and opens a fresh upside extension with a measured move objective towards 1.3000 over the coming sessions. Look for any setbacks to now be well supported above 1.1500 on a daily close basis.

Written by Joel Kruger, Technical Currency Strategist

If you wish to receive Joel’s reports in a more timely fashion, email jskruger@dailyfx.com and you will be added to the distribution list.

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