With Christmas in couple of weeks, we can expect a slowdown in trading activity soon. However, this week should remain volatile, with the economic calendar full of important events. The commodity currencies are likely to be most affected adding to their recent volatility. Fundamental data from China, such as the CPI and PPI, as well as Retail Sales and Industrial Production are on the list. In addition, employment numbers from Australia will impact the AUD, while RBNZ policy meeting is very important for the NZD. Analysts are predicting no action, but volatility always increases when central banks speak.
On Thursday, the Swiss National Bank will announce its interest rate decision. Because rates are at 0% in Switzerland and extremely unlikely to increase, this event does not get much attention. Everybody “knows” that the SNB is happy with maintaining the 1.20 floor in the EUR-CHF and will presumably buy an unlimited number of Euros to defend. It makes sense, since the EU is the largest trading partner of Switzerland. Currently the EUR-CHF is around 1.22 or so, which should not require additional action from the SNB. At the same time, though, we should find out just how much the central bank cares about other currencies and the relation to the CHF.
In case of the USD-CHF, the exchange rate has declined to about 0.8900, very low level from a historical perspective. Certainly, the SNB is not happy with this or the CHF-JPY at 115.00 (highest in 20+ years) or AUD-CHF at 0.8100. It will be interesting to see if officials address this issue and what kind of threats will follow. Personally, I think we will witness some saber rattling from the SNB, perhaps talk of negative rates and more intervention. Thus even without an immediate action, the policy meeting could cause volatility based on language of the official statement.
Of more immediate interest is the EUR-USD. This pair closed on Friday at the high for the day. I expect to see a continuation for a few hours, followed by a corrective move. The signal to watch for is a bearish candlestick reversal pattern on the 1H chart. Obviously, there is no way of telling what type of pattern might happen but a shooting star, engulfing line or doji are some of the possibilities. I will be seeking 40-50 pips on a pullback, depending on how exactly the action unfolds. Have a great trading week!
Mike K.