EUR/CHF, a Year of Free Market (07/2010-07/2011): August 2010

EUR/CHF will begin the new month at fresh record lows and this may encourage some of the bigger macro funds to join in the rout, those that aren’t already involved that is. I think it was Paul Tudor-Jones who said that his best trades often came when he realised he was wrong and then doubled up in the other direction. Well I’ve been very wrong on EUR/CHF for the last 10 big figures but I certainly don’t have the stomach to reverse strategy and double-up.

Regarding USD/JPY, if the BoJ don’t turn up to defend recent lows at 83.50 then I think we can ignore their blusterings (in fact most of the market seems to be already doing so). As Jamie mentions below, if corporate Japan are still on the offer then this pair is probably set for lower levels.

GBP seems to be losing a bit of its recent glitter whilst the EUR and AUD are jogging on the spot.

Good luck today.

Looks like we’re seeing the dip buyers in USD/CHF and EUR/CHF being carried out on stretchers. A month-end surge in franc may just be a seasonal thing but given the new ground made to the downside in the cross (all time lows around 1.2880) and below 1.0200 in USD/CHF, clearly this is a powerful move that should not be faded.

If you are so inclined to pick bottoms (never a high-probability activity), let the market bottom and buy a bounce. Don’t catch a falling knife.

1.0130 is crucial support for USD/CHF. More stops are perched below and a sustained break should see push below parity.

The EUR/CHF selling which mentioned earlier is having the obvious effect on USD/CHF and stops below 1.0220 are getting very close. We should remember that we got very close last week also but couldn’t trigger them.

Heavy optionality also seen at 1.0200.

This is somewhat unusual for the Asian timezone but it is selling in EUR/CHF which is leading the market this morning.

The daily close below 1.30 is a bearish event and we are now trading at historical lows. At least two waves of selling have hit the market already today and with no historical supports to base our decisions on, it may have some distance yet to fall.

Dealers say that most of the flows are coming out of EUR/CHF and that heavy selling in the cross has forced the EUR/USD lower and tripped stops below 1.2660.

Stocks are giving back much of the gains made on Friday, now down 0.8%. Bond yields continue to slide as well, down to 2.55% from 2.60 earlier in the day and 2.65% at Friday’s close. Risk aversion is in full flower once again.

EUR/JPY trades at 107.45 and EUR/CHF at 1.3000, both sharply lower on the day but slightly above earlier intraday lows.

The majors are trading inside of tight 25 pip ranges this morning and if we are to see any volatility it will likely be inspired by the CHF. USD/CHF is close to important support at 1.0200 and EUR/CHF is trying to establish itself below 1.3000.

We shouldn’t be surprised by early movements in the so-called risk trades seeing as it is Friday and most traders seem to want to be square or short heading into the weekend.

EUR/JPY and EUR/CHF have fallen 35 and 25 pips respectively in early trade and whilst definitely nothing conclusive, it does give an indication of the way traders are tending.

• EUR/USD has seen very large Sovereign plays either side of a 1.2590/1.2730 range
• Big hedge funds have been buying USD/JPY; this could be partial profit-taking on existing shorts or it could be fresh longs
• Two other big funds have been selling GBP/USD and GBP/CHF
• More money continues to flow into the CHF from all directions

What I glean from all of this is the following (presuming you are a follower of flows); if you are putting on a risk-aversion trade then you should sell GBP/CHF wheras if you’re looking to put some risk back on then you should buy EUR/JPY.

All of this will of course change when the next big flow hits the market.

• EUR/USD: Sovereign names both sides; bids at 1.2580/90, offers 1.2720/30
• Cable: Two large hedge funds have been main sellers over last 48 hours. Offers still noted around 1.5480. Downside seems fairly light until stops noted below 1.5290.
• USD/JPY: Trailing stops noted above 85.00; Corporate offers starting at 85.25/40. Not hearing much in the way of bids at this stage.
• USD/CAD: Sovereign sellers noted overnight at 1.0650; further offers starting at 1.0700 (same names who bought at 1.0200 and below)
• EUR/CHF: Option protection ahead of 1.3000

Traders note a research piece from UBS saying “don’t count on the SNB” to intervene to weaken the franc, specifically citing the bank’s futile experience trying to stem the tide toward CHF strength back in May/June. CHF strength is the “new normal”, UBS says…

The cross trades at 1.3070, up from 1.3049 lows about an hour ago. 1.3000 barriers remain rumored.

Mutterings (no more than that) of SNB/BIS interest down at 1.3155 in EUR/CHF. We’re presently at 1.3170.

Already nursing big losses, odds of heavy intervention by the SNB to weaken the franc seem remote.Here is the FT’s take.

I’ve heard a few mentions of BIS buying in EUR/CHF around 1.3135 and a quick look at the hourly chart would certainly seem to suggest that there is something going on at that level. The last 20 hourly bars have been sitting just above there although if recent experience is anything to go by, it is going to take a lot of buying to hold this pair up.

• AUD/USD: Solid bids .8825/35; sell orders also solid around .9025 but little else reported in between
• Cable: Sovereign offers reported 1.5640/50; bids also reported around 1.5450; stop-loss sell orders increasing below 1.5425
• EUR/USD: As expected trailing stops above 1.2740; mixed-bag above there until 1.2850 area when offers predominate
• USD/JPY: Semi-official bids expected towards 84.75; no reports on corporate offers yet; stop-loss buy orders building above 86.30
• EUR/CHF: Sovereign bids in form of BIS rumoured at 1.3135/40 (unconfirmed)

• EUR/USD: 1.2735/40 was the previous support which broke on Friday during London and the market has been unable to get back above there since.
• EUR/GBP: Technical support in form of a daily low very close by at .8168
• EUR/CHF: All-time low at 1.3070
• USD/JPY: Presumed intervention level at 84.75

• EUR/CHF: Major all-time low at 1.3070 is now only 75 pips away
• EUR/JPY: 107.30, lows from late June
• EUR/GBP: .8170 initial support but little below there until the June low at .8065

Liquidity is not particularly good in the market today and the EUR/USD has fallen 75 pips on what has been mainly cross flows- EUR/JPY, EUR/CHF and EUR/GBP selling. The problem for the EUR/USD is that there are not many buyers around and hence the quick fall. If no Sovereign bids appear soon then the stops below 1.2735 will be easy pickings and we could be in for an even sharper fall.

Perhaps it might be a good idea to trade in slightly smaller amounts than usual as liquidity decreases and volatility increases.

I’m just reporting it, doesn’t mean I get it. The buying of CHF shows no sign of letting up and we look set for a retest of the June record low at 1.3070. Who knows where and when this downtrend will end so I’m leaving it alone.

On a related issue, I’m hearing of large stops in USD/CHF below 1.0220 which might get some attention later today.

EUR/CHF has posted a new intraday high at 1.3454 and the downmove of recent days is in the process of being reversed. Finally the market gets a bit of common sense! I mean buying CHF as a safe-haven against financial crises when their whole economy revolves around their banking system! Come on Mr McEnroe, you tell ‘em. You cannot be serious!!

Looks like EUR/GBP is leading the way in early trade and it is up 55 pips on the day; next resistance there is at .8260.

EUR/CHF has also rallied almost 100 pips which is little surprise after yesterday’s inexplicable (at least to me) drop. Hourly resistance in EUR/CHF is at 1.3450.

EUR/CHF is over 1% lower in the last 3 hours and the flight into the Swiss Franc is showing no sign of abating. Other potential safe-haven trades like the JPY (risk of intervention) or the AUD (election) do not look particularly attractive and hence the flight into the CHF. Sorry, not for me.

No sooner do I say that there are no stops close by, than one pair starts moving to make a liar of me. EUR/CHF was the culprit and stops below 1.3400 were triggered sending it to a low of 1.3368 so far.

The German GDP data from a few hours ago was indeed very impressive and even though we are seeing some short-term longs bailing out of their positions, I would tend to think that when the market sits back and analyses what it should be doing, it will find buying EUR a lot more palatable.

The US economy is still struggling to get back on its feet and the USD has little going for it; the JPY is already at quite prohibitive levels and the threat of intervention lingers; and the CHF is also at extremely high levels.

Certainly the risks relating to the PIIGS stil exist but in my eyes the EUR has just become a little more attractive. It may take days or even weeks to feed through into market sentiment but I think EUR/USD and EUR/CHF to some extent, may soon turn higher again.

EUR/CHF and EUR/JPY are falling back again as frustrated longs give up the fight. Very strong German GDP wasn’t enough to drive the EUR higher so the logic is, what can’t go up must go down.

EUR/JPY should find initial support around this mornings 110.05 lows.

As we well know, the CHF and the JPY are the two destinations of choice for the risk-aversion trade. With the market still in risk-averse mode but getting worried overnight about possible central bank intervention in the JPY, this meant that all the risk-aversion trading was concentrated on the CHF. Little wonder that it appreciated by almost 1.5% against the EUR.

• The USD still looks mightily unattractive after last night’s FOMC meeting and will probably remain friendless in the FX community for another while yet.
• EUR and GBP are at very elevated levels already after rallies of over 10% in the last two months;
• the AUD is directly linked in the market’s eyes to all things China-related so worries about property bubbles, the upcoming election and the already high AUD/USD spot rate are certainly potential negatives there;
• Sovereign names keep selling CAD and I’m not going to fight them
• which leaves the CHF and the JPY. We saw strong moves on the crosses overnight with EUR/CHF falling over 100 pips and EUR/JPY likewise.

Conclusion: If in doubt, buy CHF and JPY.