EUR/CHF: One Year of Free Market (07/2010-07/2011): December 2010

Bloomberg article.

EUR/CHF down at 1.2595 from early 1.2635.

Just reading UBS forex strategists say they are bearish the cross, focusing on 1.2439 ahead of 1.2283.  They see resistance at 1.2714.

They also forecast a fall in USD/CHF.  See break through support at .9463 potentially exposing .9202.   The spot rate is presently down at .9511 from early .9551.

Just when you thought it was safe to short CHF, another Portuguese downgrade…

EUR/USD has dipped back below 1.31000 and EUR/CHF us at 1.2585.

The downgrade reflects the much more difficult funding environment for the government and banks…

The 2011 budget target is extremely challenging, Fitch says, and they say they expect a recession next year. They do not assume Portugal will seek EU/IMF funding…

That’s what everyone is asking as EUR/CHF and USD/CHF shoot higher in ultra-thin trade. No confirmation of intervention yet…

No sign of the bull run in the CHF to slow down and the volumes during European trade remain very substantial. The AUD and the JPY also remain well bid whereas the European currencies and the USD remain heavy. This is really just an extension of the trends which have been in operation all year but are now getting over extended in illiquid markets.

I can’t imagine there will be much to talk about until Europe. This is no news due out and very little in Europe, however a veritable swag during US time.

For now I expect the Asian equities to be moderately bid, the USD/JPY was again well supported overnight with buyers in the forties and stops below.

The EUR/CHF took out the key 1.2500 barrier in Europe and all reputed stop levels. There doesn’t seem anything to stop the train !

Overnight saw new lows in EUR/CHF, EUR/AUD and GBP/AUD as Euro remains generally offered, Sterling looks ordinary with Cable closing the US session below 1.5400 & EUR/GBP above 0.8500;  and the AUD soldiers on…..

However as we have only six sessions before the holiday and liquidity will keep reducing I would be wary of not considering some profit-taking reversal specifically in EUR and Cable; I still hold to my recent comments on the AUD – the others go down 100 points and the Aussie retreats 10 pips ?!

It’s gotta tell you something….

Looks like we’re finally getting into the holiday spirit with markets settling into fairly tight ranges.

Money continues to exit the euro zone through the door into Switzerland making EUR/CHF the subject of most of the market’s limited attention.

So far, not a peep from the SNB, other than to deny that President Hildebrand said that EUR/CHF could plummet to 0.50…

Mo matter, the market has taken it upon itself to make a run for the “non-target”…

Fresh record lows for the cross just above 1.2450 as we write…

And gave me some stop info on EUR/CHF.  Apparently stops through 1.2520, 1.2500 and 1.2470.  Barrier interest at 1.2500.

This pair has been on a straight line lower in recent weeks but further falls are likely to be stalled by some big barrier options at 1.2500. Some smaller ones were triggered last night but the next batch are worth protecting, or so I’m told.

They will pay any price for Swiss francs, apparently.

EUR/CHF is at a fresh all-time low of 1.2585. Sovereign debt jitters in Europe are clearly playing a part but no doubt holders of CHF-denominated mortgages are no doubt playing a part.

I really feel for the folks in central Europe who borrowed “cheaply” in francs only to see the currency rocket higher, turning that cheap loan into a catastrophe…

In thin, year-end markets there is no telling how far the franc can go if the market gets one-sided.

Central banks will sometimes enter a market to provide liquidity when there is none. Perhaps the SNB could play that role, but don’t expect them to chase EUR/CHF up, and don’t expect a big, expensive intervention. Maybe a few bids to steady the market, if that…

• AUD/USD: Corporate interest to buy on dips towards .9880
• EUR/GBP: Stops below .8440
• EUR/CHF: Barriers at 1.2550 and 1.2500
• USD/JPY: Corporate sell orders firm between 84.50/75

EUR/CHF is at all time lows this morning, reflecting the continued concerns over European sovereign debt.

France is the latest European economy to be captured by the credit spotlight.  Bloomberg warns of a possible multi-multi-grade cut to France’s sovereign debt rating owing to massive French bank exposures to the sovereign debt of other EU states.

Real-money accounts have been small but steady sellers of EUR/USD on rallies this morning.

EUR/USD is at 1.3162, EUR/CHF at 1.2688.

EUR/CHF, EUR/JPY and EUR/GBP are all trading at session lows and the single currency is not showing any sign of bounce against any of the majors. EUR/AUD has traded at fresh record lows this morning and trying to pick any sort of bottom for the EUR is a dangerous occupation.

In recent trade.  Will help explain the recent decline in cable, from session high 1.5603 to 1.5567 at wrting.

At same time, being told major US bank sold EUR/CHF at the 09:00 fix.

As I mentioned yesterday, the interbank market is convinced that there are more gains in store for the CHF and it is the strongest factor of all which is leading the way; weight of money. CHF buyers have abounded over the last 6 months and now that the market liquidity has reduced significantly, the moves in the CHF are becoming more extreme. GBP/CHF broke below a previos chart low overnight and EUR/CHF has touched its previous low. Trying to pick a bottom in any of these CHF pairs is a hazardous occupation.

Having just been asked my opinion on taking a short-term punt on a long EUR/CHF trade, I’ve done a bit of investigation to see what the interbank market thinks.

One of the bigger banks put out a small research piece overnight and they see EUR/CHF as being the prime mover over the next few weeks, and they see it heading a lot closer to 1.20 than 1.40 in Q1 2011.

The interbank dealer I spoke with is of exactly the same view. The weight of selling in USD/CHF remains very heavy and very consistent and as long as the EUR sentiment remains negative, EUR/CHF should continue to fall towards 1.2500 in the early New Year in his opinion.

Further to the EUR/CHF comments I’d just add that a very large one-touch option rolled off last night which meant that the protection ahead of 1.2900 suddenly evaporated and hence the sharp drop during NY trade.

The EUR/CHF is trading at 1.2840 just above it’s overnight low of 1.2827; the previous low was 1.2769 on 6th September

While it looks as though the CHF strength could continue and a weekly close below the latter could easily see a much stronger impetus down, there is of course the  possibility of a double bottom…for fans of double bottoms

Blackday I hope you took the short the other day at 1.3070-90 ?

ADDENDUM –

Any reversal in this would have to be EURO driven and should there be any positive vibe from the EU summit later this week then you may see some Euro strength helping lift the cross.

Anyone looking at this scenario at least knows where the stoploss needs to be !

Thanks to Annie for this article http://blogs.wsj.com/source/2010/12/14/premier-cru-swiss-style/

Lots of speculation on just why EUR/CHF took such a tumble. A UK clearing bank is getting the blame for being the biggest seller while a US think-tank report is getting some of the blame.

Another theory is that there was a 1.2900 barrier that was broken.

Lots of chatter, not a lot of confirmation just yet….

We’ve been as low as 1.2868 and trade now at 1.2895.

1.2915 is resistance.

One of the Swiss banks is touting EUR/CHF higher, based on rising EUR yileds relative to Swiss rates…The like it up to the 1.34/1.35 area from 1.3060-ish now…They like USD/CHF as well…

EUR/CHF is down at 1.3060 from around 1.3085 when I arrived.

Talk of buy orders lined up from 1.3050 down to 1.3030.  Interest is said to be related to 1.3000 barrier option interest (protection of)

Aussie may drop 15-20% from current levels.

Selling EUR/CHF looks like a god bet, he says.

Would love owning more gold, fund manager tells tells Reuters.

EUR/CHF up at 1.3085 from around 1.3025 when I arrived.

Mutterings that the Swiss National Bank may have been in buying. I have no confirmation of such whatsoever.  And I’d have thought if they’d turned up we’d be appreciably higher than we are at present. Much more likely someone taking a lump of profit after the recent sharp sell-off.