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

Cable rallied above 1.5900 in the early European rush to sell EUR/GBP but the sharp fall since doesn’t bode well for the short term bulls. I personally have exited most of my long position and will look to reinstate towards 1.5500.

GBP/CHF once again halted at the major 1.5360 low but the bears seem to be reasserting themselves there and a break below could see more heavy GBP selling.

All in all, the risk reward for sitting long GBP isn’t looking too flash so as its Friday (and a long weekend here in Australia), I’ll book some profits and see what happens.

I might have missed something, but most of the news I’m hearing out of Europe is not of the good variety; Greece is broke, and Ireland’s in trouble as are Spain and Portugal. Nevertheless the EUR keeps rising so that is telling us something.

EUR/USD is 20 pips off monthly highs, EUR/GBP has broken out of a medium term downtrend, EUR/JPY is readying to test important technical resistance and even the ‘un-buyables’ like EUR/CHF and EUR/AUD are threatening to turn neutral at least.

The only obvious explanation is the heavy buying by Asian central banks who’ve been buying USD/Asia and then diversify into EUR mainly. This is forcing the EUR higher which in turn forces short-covering on the crosses. As the old adage goes, the market can remain irrational for much longer that you can remain solvent so if you don’t understand it, don’t fight it. Take a break and come back refreshed when the market makes more sense.

EUR/GBP has been the main mover over the last 48 hours and yesterday’s strong technical signals have proven correct. Nevertheless we should probably be careful on this particular cross today as some big flows are expected.

The EUR also managed gains against the CHF in another sign that the EUR short-covering is a slightly more dominant factor than the USD selling, for the moment at least.

The AUD has stalled as expected around the .9725 level but the pullback so far has been very modest. I think we need a bit more evidence here before getting overly bearish. Perhaps re-visiting the EUR/AUD trade again might be fruitful.

Good luck today.

GBP/CHF and AUD/CHF are moving slowly higher in early trade and the CHF crosses are the only pairs that are moving in early trade.

Have a good evening and I’ll catch you again tomorrow. Good luck out there.

Some light flows are being reported just after the Tokyo fix with EUR/JPY and CHF/JPY selling coming out of Japan.

This week sees the end of the fiscal half-year in Japan. This normally means that Japanese exporters will sell earned currency and also try and lock in rates for the next six months, both of which will weigh on the JPY crosses.

After big gains on Wall Street on Friday night, regional Asian bourses are expected to make similarly strong advances. This should benefit the traditional risk trades like AUD/CHF or EUR/JPY.

I have a vested interest in this pair in that I went long last week in the hope of a double-bottom forming around 1.5370. The market bounced very aggressively off the Friday night low at 1.5360 and has also put in an outside-day reversal.

(Add in to the mix that real money funds have been aggressively selling EUR/GBP yet the EUR/CHF speculative market is supposedly very short).

Support on the day is at the Fibo pullback levels of 1.5515 and 1.5455.

Most of the falls came later in the session. Any Asian markets which are open will more than likely start with a soft tone.

This will have a bearing on risk trades like AUD/JPY and EUR/CHF and as it’s ‘risk-off’ Friday, the general sentiment on both pairs will probably be bearish to begin with.

EUR/JPY and EUR/CHF are both a little higher after the relatively up-beat comments from the Chinese Premier. The AUD/USD is also trading just below its session highs at .9570.

I’ve been hearing for the last day or so about the big bids which are in USD/CHF between 98.25/50; the overnight low was 98.37. If these levels continue to hold then existing shorts can consider covering some partials, looking to re-enter back towards 1.0100. The fact that EUR/CHF has started to make some gains in recent days might also help.

Yesterday afternoon we saw one of the bigger Swiss banks ‘hoovering’ up EUR/CHF from 1.3140 and reports from the NY session suggest that another smaller Swiss name has been very active in buying both EUR/CHF and EUR/USD. I’m not sure what’s behind it but they are usually not too far wrong!

The Swiss banks are always the first European banks to start and one of the bigger ones has cleaned out all the offers between 1.3140 and 1.3190 in EUR/CHF. Sorry but I’ve got no insights yet as to what was behind it.

EUR/CHF up at 1.3207.

SNB holds target range for 3-month swiss franc libor unchanged at 0.00-0.75%. Continues to aim for 3-month libor at 0.25%

If any personel people at UBS are looking in, I’m open to offers if you’re looking for a new chief economist. I can be contacted on…….

The good folk of Suffolk can rest easy. I’ll be keeping my kit on………for now.

Stops seen through 1.0070 in USD/CHF. We’re presently at 1.0025.

Through 1.3160 in EUR/CHF.  We’re presently at 1.3115

Through 1.0240 in USD/CAD.  We’re presently at 1.0240

Bloomberg article

EUR/CHF trading up at 1.3110 from early 1.3010 reflecting consensus view that SNB will stand pat on rates.

Guess I might get to keep my kit on after all. Just as well, it’s getting a wee bit chilly out there.

Oh yes indeedy. EUR/CHF sits around 1.3005.

Hearing talk a US investment bank has advised it’s clients to square their short EUR/CHF positions.

Cross up at 1.3030 from early 1.3000, having been as high as 1.3044.

Take it for what you will.

EUR/GBP, EUR/CHF and EUR/JPY are all slightly higher this morning and one gets the feeling that some EUR bears are throwing in the towel.

Major resistance is again looming in the EUR/GBP just above .8400, EUR/JPY looks like it is trying to form a springboard base for a move back towards 114.00 and EUR/CHF finally looks like it may be about to do something about those horribly oversold daily signals.

This is another USD-pair which is a solid downtrend but it may get a temporary respite if the risk trades like the CHF crosses start to rally. As Citibank reported last week, the speculative community is very short of EUR/CHF and we may see some short-covering there if the EUR/USD rally continues and equity markets head higher.

Technical support is at .9910 and I’m hearing reports of good sized bids around the .9825/50 level. Resistance is now very firm around 1.0250/75. Playing the edges of this range would seem to make good sense.

• Relatively quiet session as the market awaits the outcome of this afternoon’s challenge by Ozawa to PM Kan for leadership of the Japanese government
• UK economy: House price expectations fall sharply
• UK economy: Consumer confidence improves
• NZ retail sales fall sharply
• Australian business confidence on the rise
• Regional bourses mixed

The NZD was the first mover of the day, falling sharply on poor retail sales data and this dragged the AUD lower with it. Risk trades have fallen with the AUD losing ground against all the majors but particularly the CHF and the JPY. Ranges: AUD/USD .9320/51, AUD/JPY 77.55/78.20

USD/CHF fell sharply at one stage in early afternoon trade after the previous low at 1.0060 and a barrier option at 1.0050 were breached, triggering stop-loss selling. More barriers seen at 1.0000. Ranges: USD/CHF 1.0115/97, EUR/CHF 1.2899/1.2985

Cable fell in early trade as the poor house price data overshadowed the improved consumer sentiment. Risk-trade selling also impacted but cable has gradually recovered back to its opening level. Ranges: Cable 1.5377/1.5428, EUR/GBP .8343/65

USD/JPY has drifted lower throughout the session and has broken below the previous 83.35 low albeit with little follow through. The market is now in stand-by mode awaiting the challenge to PM Kan. Ranges: USD/JPY 83.26/75, EUR/JPY 106.99/107.84

EUR/USD has probably been the quietest of the majors, being tugged around by flows on the crosses. It ends the session unchanged after a 1.2845/82 range.

Markets: Nikkei -0.5%, Sydney +0.5%, Shanghai and Seoul flat, HK +0.2%. Gold $1251/oz, Oil $79/bbl.

The EUR/CHF price action today is a real head scratcher. A two-hundred pip rally in 6 hours followed by a 100-pip retracement in about 3… Traders reported huge buying from one of the two CHF mega banks across all the CHF crosses but particularly EUR/CHF and GBP/CHF in addition to USD/CHF. A US investment house was a big buyers as well but they reportedly were quick to take profits, helping set the top in USD/CHF at 1.0278 (after first triggering the 1.0270/75 stops.

When you get big concentrated moves like that one thing springs to mind: Hedge fund blow-up. Price action like that looks like someone being taken out of a position on a margin call. Keep your eyes open for stories over the weekend or early next week of a hedge fund shutting up shop…

Not sure why the Swiss franc has suddenly pooped the bed but traders are blaming black-box type funds for the sudden liquidation of CHF longs.

My own opinion is that we are seeing a macro-shift from risk aversion as it looks as though the US economy is experiencing a mid-cycle soft patch rather than tumbling back into recession. If that turns out to be the case than we will not likely see any further quantitative ease from the Fed.

As noted yesterday, US equities and bond yields broke months-long downtrends, spurring my macro call. The CHF slid only strengthens that notion, to my mind.

Stops in EUR/CHF are perched above the 1.3050 level, traders relay. 1.3150/65 is monumental resistance in that cross.

The Dubai World news seems to have been the trigger for quite a rebound in risk sentiment.  EUR/USD up at 1.2730, EUR/CHF up around 1.3000.  Cable has rebounded strongly, presently at 1.5450.

Guess we should be alert to renewed SNB selling in EUR/USD, the Swiss central bank having been seen active seller up in 1.2750/65 area yesterday.

There has been hardly any change in the major currencies compared with yesterday morning with the exception of the AUD and CAD which are a little stronger.

We didn’t get many clues overnight as to future directions but the SNB continuing to sell EUR/USD will have some effect on sentiment. (Then again they did get EUR/CHF quite wrong!).

Japanese GDP and monetary policy meeting minutes are due for release in a few hours.

Good luck today and TGIF.

There are still bids in the EUR/USD around 1.2660, supposedly from Sovereign names, but there are also lots of stop-loss sell orders tight below 1.2655. If bearish sentiment towards the EUR starts to re-assert itself then these orders will be tested.

EUR/AUD is trading at record lows and EUR/CHF isn’t far away from its record low so overall sentiment remains quite bearish.

With jitters once again running high in the forex market, where to traders flock? EUR/CHF shorts, of course.

Stop-loss-sell orders are perched just below the all-time low at 1.2850, traders report, and below  1.0066. 1.0085 is support just ahead of that major low.

An article in the WSJ suggests that some of the recent EU bank stress tests understated the exposure to risky government debt.

This along with the widening in the German/Belgian spread has spooked the EUR market and we are seeing stops going off across the board.

The EUR is under pressure in early Asian trade. Some EUR/CHF flows have manged to push EUR/USD lower, triggering stops below 1.2855.

Not much in the way of hourly support until 1.2780.

I was opining yesterday that the price action in EUR/CHF is suggesting to me that we again may be able to consider a contrarian trade. Despite very heavy option-related selling, the pair jumped 200 pips in two sessions which suggests to me a market that is very short.

Now Citi Bank market analysts have come out and said that the hedge fund market is very short this pair, and they would probably know.

Technically there is no indication yet of any bottoming formation, and USD/CHF continues to trade in a very bearish fashion close to its recent lows, but I think EUR/CHF is one trade the contrarians among us should continue to monitor closely.

Citibank analysts (not the tech guys) say like EUR/CHF, noting the slide is overextended and that hedge funds have too large a short position. Yield spreads between Germany and the likes of Greece and Spain have narrowed a bit of late, lessening the safe-haven play. The like a small position, about 5% of a portfolio, they say…

A high-profile NY think tank which prefers to remain nameless says there is a possibility that the SNB could hike rates in December, though the odds are diminished (probably by the strong currency).

They firm sees the SNB hiking before the ECB, regardless.

Intervention cannot be ruled out, but it would not be as large as earlier efforts, they say…

My take is that the currency tightens monetary conditions enough that the SNB will refrain from hiking for soe time to come.

Down at 1,2965 from early 1.3010, with reports a UK cleaer has been notable seller of the cross this morning.

Better than expected Q2 GDP data will have supported swissy.

Despite the very heavy option-related selling below 1.3000 which took the market as low as 1.2850, EUR/CHF has bounced back very impressively. When a market bounces hard despite being in a strong downtrend and despite heavy selling still occuring, then we may be close to a bottom.

Another point to keep in mind is that the flat trendline support in USD/CHF comes in at 1.0020.

All music to the ears of a contrarian like myself but I’ve been burned a few times already so I will proceed with caution.

I’d put this one in the “hard to believe” category, but just to let you know.

Talk a major Swiss commerical bank has been asking their clients to take back shorts in EUR/CHF. Sounds like a load of old cobblers to me.

A source infact tells me, that only yesterday said bank was opining that there was a low risk of a sharp rebound in the cross.

EUR/CHF presently up at 1.2943 from early 1.2900.