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

Just brilliant Jamie

Australian GDP this morning and the market is now gearing itself for a poor number after yesterday’s data and weekend comments from the Treasurer. China is selling rallies in AUD/USD and Middle East Sovereigns are buying big dips; sounds like a recipe for medium term range trading.

The EUR has made big moves on the crosses with EUR/JPY, EUR/GBP and EUR/AUD all threatening a return to recent bull trends and even the ultra-bear trend in EUR/CHF is showing signs of tiredness.

Good luck today

EUR/JPY has broken above recent resistance at 116.40 and in spite of all the doom-sayers the embattled single currency looks set for some continued strength. EUR/GBP has also broken above recent highs at .8710 and the technical picture is looking increasingly bullish. EUR/CHF hasn’t quite turned the corner and would need to break above 1.2250 to alleviate the bearish momentum but EUR/AUD is another pair now threatening to turn aggressively upwards.

Most people are very surprised to see such big moves this morning in the FX market but they are showing no sign of slowing down. EUR/USD looks like it will now start to stablish a base above previous resistance at 1.4340 and shorts are forced into covering before it runs away.

Interestingly enough, USD/CHF is holding above support at .8465 and EUR/CHF is starting to move higher. EUR/JPY is also challenging some chart resistance at 116.40.

Nice article here from Reuters summing up the situation in Europe with Lagarde likely to take over the helm of the IMF and Juncker starting to twist some arms to get a deal done before the end of June.

As Jamie mentions below, it was a two-horse race in the ugly stakes with the EUR just pipping the USD at the post. EUR/GBP and EUR/CHF were again hit hard but this time the AUD and the JPY in particular also joined in. It’s risk-off Friday and I’m sure there are some long-term EUR longs out there who’ll be feeling a bit jittery heading into the weekend.

Good luck today and TGIF.

The fact that China might or will buy Portugese bail-out bonds is nothing new. The market has probably been caught short EUR/USD in particular and is using this ‘news’ as an excuse to trigger short-covering stops.

I’m hoping for a rally towards .8705 in EUR/GBP to set some intraday shorts. I think that if Europe walks in and sees EUR/CHF and EUR/GBP higher on the back of this FT headline, they will smash it back down straight away.

Usually the dollar and CHF rally together these days but today we have a divergence. EUR/CHF is sliding to fresh record lows while EUR/USD holds in the upper end of its NY range.

The cross has been as low as 1.2270 and trades now at 1.2280. EUR/USD is firmer, at 1.4090.

1.2297 the low thus far, a record.

One of the bigger hedge funds is active this afternoon, selling the screen as they say.

They’ve been selling EUR/CHF, EUR/GBP and AUD/USD.

EUR and AUD crosses are generally lower with the CHF again making the most gains and the JPY, GBP and USD basically unchanged.

I’ve had a few chats with fellow traders today and we’ve been trying to figure out what the best currency to buy is.

• Given what’s going on with Greece and the possible ramifications for the other EU countries, buying EUR is pretty hard to justify and in fact it looks like a raging ‘short’
• The US economy is certainly not convincing and there are more rumblings emanating from the housing industry. QE2 is about to end and that may set the economy back again which could lead to a Wall Street sell-off. The USD is at low levels but it’s hard to buy with confidence
• The GBP is usually closely allied to both the USD and EUR so if they fall, then the GBP might struggle as well.
• The AUD market is very long, the AUD is close to record levels, and one bad sign out of China could mean a 10% adjustment so its hard to be long at these levels.
• The CHF has seen massive inflows in recent years from the Middle East and also from Greece in recent times. It’s certainly a bubble but this bubble might still have a long way to go. It’s justifiable to be long CHF but certainly not without danger.
• The JPY is also at very high levels despite the earthquake/tsunami and a very loose monetary policy. I certainly cannot find any reason to be long JPY.

Which leaves the CAD and the NZD and as I can never make any money trading either, I may be in a bit of strife  I think I might buy some more GBP

The Kospi was +0.6% earlier this morning but is now -0.8% as risk aversion returns to the Asian financial markets. Gold is steady at $1524/oz. AUD/USD is sharply lower on the session  and EUR/CHF is also lower.

Reuters are mentioning rumours of a snap election in Greece and this is also undermining the EUR. The low so far in the EUR/USD has been 1.4032. EUR/CHF has touched 1.2359 but no mention of SNB who were rumoured to be buying at that level.

Ok, that got rid of about 1 person.

The rumour circulating since NY is that the SNB is on the bid in EUR/CHF around the 1.2360 level. Hence the short covering by professional traders this morning.

Possibility of a short term double bottom in the AUD/USD with the overnight low at 1.0475 holding firm again.

It’s all been about the CHF crosses this morning so far and they look to hold the key to further short-term moves

1.2480 was the recent daily support level and a break back above there is likely to trigger more trailing stops.

Bears can consider selling a failure (wait for an hourly high to form at or below) at this level with a fairly tight stop.

The comments earlier from the SNB that they are very worried about the strength of the Swiss Franc has worried some CHF long positions and hedge funds are buying EUR/CHF and USD/CHF in particular.

USD/CHF has made a big move this morning from earlier lows at .8830 to highs above .8890.

Positions in USD/CHF are usually sizeable and liquidity at this time of day is poor, hence the gaps. USD/CHF triggered large trailing stops above .8850, trading to .8873 so far.

USD/CHF is often traded through the components due to lack of straight liquidity ie if you want/need to buy USD/CHF then you buy EUR/CHF and sell EUR/USD as they are much more liquid at this time of day.

That is according to this report on Bloomberg quoting a Mizuho Bank analyst

At the beginning of the European session yesterday, it looked as if the EUR was headed to zero such was the negative sentiment surrounding it; yet this morning the EUR has made quite an amazing recovery especially on the crosses with EUR/CHF, EUR/GBP, EUR/AUD and EUR/JPY back at or above yesterday’s levels during Asian trade. Not everybody believes in the demise of the single currency just yet.

I’m still very wary of being long EUR but if I was forced to buy a single pair, then I’d buy EUR/AUD, purely from a technical risk/reward standpoint.

They sold overnight at 1.2375 with a stop-loss at 1.2525 and an open profit target of at least 1.2000.

The close back above 1.2400 will be worrying for all those who sold the break so I’d suggest waiting for a retest of the previous low at 1.2470. A break and close back above there and the contrarians’ interest will surely be piqued.

They sold at 1.2375 with a 1.2520 stop, looking for 1.2000 or perhaps as low as 1.1575.

Citi also sold the EUR/USD puts they bought on Friday for a healthy profit and sold EUR/USD at 1.4010.

Latest talk has the central bank sitting on the bid at 1.2360. We’re presently at 1.2365.

Take it for what you will, but there’s talk out there.

Cross at 1.2368 from session low 1.2349.   Not much of a bounce so far, it has to be said.  Ummmmmm? I’d have thought it would have bounced more aggressively on official interest.

This is not straight risk aversion this morning, as can be seen through the higher USD/JPY price, rather we are seeing straight demand for the CHF across the board with the EUR and the AUD the main losers. EUR/CHF has hit a new record low at 1.2350 and with EUR sentiment deteriorating and CHF demand (M&As, Eastern European loans etc) increasing, this trend may start picking up steam.

Options have been knocked out and stops have been triggered but anyone who sold the break will surely be a bit worried to see EUR/CHF back above 1.2400. We may see some more short covering before London opens but selling rallies back towards the previous 1.2470 lows looks like a sensible strategy.

The Kospi is -0.5% on the open.

The main movement this morning in the FX market has been in EUR/CHF, which has posted a new record low at 1.2376. EUR/JPY fell 50 pips alongside but has now recovered half of those losses as Tokyo gets started.

EUR/CHF leading the way again with the 1.2400 level now comprehensively broken. No major follow through so far which is a bit surprising given the reports of huge stops but perhaps a lot of ammunition has been spent in making the break. The risky side remains down for the EUR although EUR/USD will run into bids again in the low 1.40′s so picking entry levels remains important.

Talk of serious option protection ahead of 1.2400 and also of massive stops just below that level. The defence looks to be very well organised but if this level breaks during Asia, then there will be very large gaps lower.

Barriers and stops at 1.2400 are under attack. Watch for a snap-back bounce if that goal is achieved…Be wary of selling the break.. Sell the bounce if you are so inclined.

1.24025 the low so far on EBS.

Who like to trade EUR/CHF.  Getting reports of sell stops through 1.2580.  We’re presently at 1.2590.

Sharply lower from 8.8 in April.

Came out about 18 mins ago. Was busy elsewhere.

EUR/CHF very marginally firmer on the day, presently at 1.2565 from around 1.2540 when I arrived.  Poor number appears to have been somewhat ignored.

Well I certainly ignored it

Guess it will be lending  USD/CHF some semblance of support.

EUR/CHF fell very sharply in early London and the market has obviously not yet tired of buying CHF. As Jamie mentioned again, there is still talk of massive stops below 1.2400 and once this cross gets a roll on it can get move very fast very quickly.

There is major technical support near 1.2480 but a break below there could see the stops come into focus very quickly.

• Trichet: There is no EUR crisis, primarily a crisis of public budgets, from Bild am Sonntag
• ECB Stark: Greece must step up it’s fiscal consolidation efforts, from Der Tagesspiegel
• IMF has doubts over allocating more credit to Greece and Olli Rehn says Greece must step up economic reforms, from Die Welt am Sonntag
• German FinMin Schaeuble: Reports on possible Greek restructure are speculation but if Greece isn’t able to borrow from international credit markets next year then alternatives must be sought, from an ARD television interview

Traders reported very strong buying in EUR/CHF earlier in the session but despite that buying the pair has worked lower over about the last hour. Similar story for USD/CHF which made a run for stops above 0.8910 but failed to trigger them and has since slumped along with the cross.

The best I can make of renewed CHF demand is risk aversion remains at the forefront among investors.

1.2550 is next support for the cross which is now at 1.2570. 0.8845 is support in USD/CHF.

Same story for USD/JPY and EUR/JPY…

Talk of buy stops gathering up at 1.2720/30. We sit presently at 1.2685.

Jamie!,Jamie! Jamie!

Come back all is forgiven.

Meanwhile EUR/CHF posts new session high at 1.2667.  Swissy has been on the defensive eversince release during European morning of much weaker than expected April CPI data. The numbers have prompted the market to put back their timetable for any normalisation of Swiss monetary policy. This not surprisingly is weighing on the swiss franc.

Presently sits at 1.2610 having earlier got a high as 1.2632.   Sources report real money and large Swiss corporate selling in recent trade.

Demonstrably weaker than median forecasts of +0.5%, +0.6% respectively.

Whoops, SNB won’t be overly happy.  Strong swissy is helping build deflationary pressures.  Increases likelihood of intervention to weaken swiss currency.

EUR/CHF up at 1.2590 from around 1.2525 when I arrived.

UPDATE:   Also likely extends timeframe for any SNB monetary tightening

The EUR/USD uptrend started at 1.2870 and the 38.2% retracement of the move from there to 1.4940 comes in at 1.4150. There is also a daily low at the same level so that gives us a good technical target on the downside.

With EUR/GBP and EUR/JPY showing signs of weakness and also talk of big stops below the market in pairs like EUR/CHF, a test of 1.4150 still looks to be on the cards.

• USD/CHF: Prop traders were keen to sell on the approach to .8800 suggesting some significant sell orders at that level (and presumably now lots of stops just above there)
• USD/CAD: Plentiful sell orders .9700/10
• EUR/CHF: Rumours of massive stops sub-1.2400

Traders note a rumor of a stop in EUR/CHF below 1.2400 for 5 yards of euros…

The fears in NY late on Friday afternoon haven’t been realised; commodity prices have rebounded with further violence in Libya driving oil prices higher, the EUR is still a currency after the meeting in Luxembourg turned out to be a lot less dramatic than Der Spiegel had envisioned, and general market feeling is reasonably positive with PMs and stocks higher.

If this mood continues, it may give the traditional risk trades like EUR/CHF and AUD/JPY another intraday lift once European trade gets underway.

EUR/GBP made a very bullish move above .8940 last night and is now targeting chart highs and Fibo resistance near .9130. EUR/AUD made some strong gains also but EUR/CHF and EUR/JPY fell on the general risk aversion mood. All of this together adds up to range trading in the EUR/USD and this present phase between 1.4750/1.4900 looks like classic consolidation of a strong bull trend.

The EUR crosses have had a good day with so-called risk trades like EUR/CHF and EUR/JPY making decent gains. This is somewhat surprising after the big falls in Silver earlier today as one would normally associate a sharp fall in the PMs with risk aversion.

Jamie will be along in a few hours and with many financial centres closed for May Day celebrations, it should remain relatively quiet until then.