The EUR/CHF pair broke out of its long term downward sloping wedge as the EU delivered more disappointing data. The question is: how close to the price floor at 1.20 will it get?
It is likely to be the easiest play any trader could make: long the weuro against the Swiss franc at 1.2000 (or thereabouts). The Swiss National Bank has said it will defend the price floor at 1.2 francs per euro with “unlimited reserves”. They are trying to stave off deflation by restricting the strength of the franc and one can only imagine there will be quite a bit in the pot to defend with. The only problem with this trade is that we might not get to 1.20.
The pair recently broke out of the downward sloping triangle that had been forming on the weekly chart. Last week the market was once again disappointed with data coming out of the EU with the ZEW reports on German and EU economic sentiment leading the way. These both fell from 27.1 to 8.6 and from 48.1 to 23.7 respectively.
GDP figures were also released, showing the france with 0.0% growth in the second quarter and Germany contracting at -0.2%. The EU as a whole was stagnant at 0.0% growth for the quarter,however, it has grown 0.7% from a year ago. These latest figures come after Italy slipped into recession once again and shows how fragile the recovery in the region really is. Another negative quarter in Germany and it too will be in a recession, with the EU not far behind it.
For the franc, the data was considerably different. Retail sales rose by 3.4% from a year ago, well above last month’s figure of -0.6%. The Swiss ZEW economic expectation report of 2.5 was above forecasts of a fall to -1.0 from 0.1 a month ago.
This week will mainly be about the euro with Manufacturing and Services PMI reports topping the list. Last month they beat forecasts, with many showing expansion, so we could see a boost here for the euro. Anything below expectations will see the euro punished. At the end of the week ECB President Mario Draghi is due to speak and could give insight into upcoming actions of the ECB, with the possibility of more stimulus to fight deflation. This certainly would see the euro dive close to the 1.20 mark. The Swiss will be relatively quiet with just trade balance data.
The indicators are certainly pointing to a bearish euro and the data could back that up. Any movement lower will find support at 1.2061 and 1.2029 before sizing up the 1.2000 price floor. The MACD is in bearish territory with the bars of the histogram getting bigger, indicating momentum is certainly with the bears.
The EUR/CHF is certainly a pair to watch over the coming weeks. It will be a traders dream if the 1.20 level is reached and we could certainly get there if the data out of the EU stays that way.