Don’t Forget About Switzerland

Talking Points

• EUR/USD consolidates above key pivot
• USD/CAD near low end of recent range
• SNB to be positive catalyst for EUR/CHF?

Foreign Exchange Price & Time at a Glance:

Charts Created using Marketscope – Prepared by Kristian Kerr

• EUR/USD remains in consolidation mode above the 4th square root relationship of the year’s high near 1.3520
• Our near-term trend bias is lower in the euro while below the 61.8% retracement of the year’s range at 1.3675
• A daily close under 1.3520 is required to set off a more important move lower in the euro
• The second half of next week looks to be an important turn window
• A move above 1.3595 would turn us positive on the euro

EUR/USD Strategy: Like the short side while below 1.3595.

Charts Created using Marketscope – Prepared by Kristian Kerr

• USD/CAD has come under steady downside pressure since failing last week at the 3rd square root relationship of the year’s high near 1.0960
• Our near-term trend bias is now negative on Funds
• A daily close under a Fibonacci confluence near 1.0800 is required to trigger a more important decline
• A cycle turn window is eyed next week
• A daily close over 1.0915 would turn us positive on the exchange rate.

USD/CAD Strategy: Square for now.

Focus Chart of the Day: EUR/CHF

EUR/CHF used to be one of our favorite markets to follow, but since the Swiss National Bank instituted a floor at 1.2000 several years ago the cross has become a “poster child” for the lack of volatility in the FX markets (mission accomplished on the SNB’s part) and has fallen off our radar. However, there could be opportunity over the next day or so as the SNB finds itself in a minor predicament after the ECB’s decision to implement negative deposit rates earlier this month as it now needs to discourage capital inflows. Market expectations are for no changes in policy at tomorrow’s meeting. We think this consensus view is a result of the lack of aggressive weakness in EUR/CHF since the ECB meeting. If the cross was pressing the lower boundary of the year’s range we have no doubt that the SNB would respond with penalty rates of its own. We wouldn’t completely rule out such a move tomorrow, but without market pressure the probability is very low. We still think the Bank is going to want to get ahead of the situation which likely means at minimum that we will get aggressive jawboning from Jordan about the exchange rate and its commitment to defend the floor during the press conference. The cyclical outlook for the cross seems to favor a positive outcome as a turn higher looks probable by the end of the week. A move through 1.2200 should be enough to confirm that a low of some kind in the cross is in place. A daily close under 1.2160 after the meeting would cast serious doubt on our positive view.

--- Written by Kristian Kerr, Senior Currency Strategist for DailyFX.com