The Swiss National Bank has been trying to weaken its domestic currency for a long time. With the exchange rate versus the Euro as target, the bank announced a floor of 1.20 in the EUR-CHF, vowing to defend it at all costs. That meant buying the Euros in “unlimited quantities” for as long as necessary. Indeed, it has been a long time, as the price was stuck at or near this line in the sand for all of last year. However, it finally looks like these actions are paying dividends.
On Thursday, the Swiss National Bank released its preliminary financial results for 2012. The central bank expects a profit of CHF 6 billion, thanks to appreciation of its foreign exchange holdings. More importantly, the CHF is falling versus the Euro, with the rate breaching the 1.2500 threshold for the first time since May 2011. Many business interests in Switzerland have been calling on the SNB to adopt this level at the new floor. Now it appears that markets are comfortable with falling Franc, or at least strength in the Euro.
On Thursday, in the aftermath of a few days rally, the EUR-CHF reached 1.2512. With the return of volatility, this pair is becoming tradable again. Until now, it was not worth paying attention to, as virtually nothing was happening. We should remember that back in 2010 and 2011 the EUR-CHF was an instrument, which presented plenty of opportunities. Better conditions are slowly returning and it makes sense to follow this pair from now on.
I have been discussing the EUR-JPY for the past several days and this pair has another possibly important development. I got out of my short position yesterday, looking for another sell along the way. The market had different ideas and rallied strongly, to 120.58, a new high for the move. This, however, creates a bearish divergence with the MACD indicator on the 4H chart. If it is confirmed, the EUR-JPY is likely to pull back to about 118.00 or so. What I want to see now is a bearish reversal candlestick pattern, which would also serve as the entry signal. As of this writing, the current candlestick is about 2 hours away from completion, so it is a little too early to say if we have a confirmation. In addition, I will watch for breakout moves at the start of the London session just like every Friday.
Mike K.