EURCHF's Fundamental Stability Needed in Such Uncertain Markets

There are a number of pairs that look as if they are carving potential range setups; but the risk of a breakout (or even false breakout) is in most circumstances far too high. Despite the lack of direction behind big fundamental themes (risk appetite, growth prospects, dollar selling), volatility is high enough and respect for technical levels low enough that seemingly solid range boundaries are giving way.

How Stable is the EURCHF Range?

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         ·         [B][U]Levels to Watch:[/U][/B]

         [B]-Range Top:       1.5350 (Trend, Pivot)[/B]

         [B]-Range Bottom: 1.5125 (Fib, Range, SMA)[/B]

         

         ·         Most of the market is on the verge of a meaningful breakout or is already edging into the beginning stages of a new trend. However, the fundamental drive for such a significant shift isn’t there; and it shows for momentum. For EURCHF, the influences of risk appetite are largely dampened through the trade link. Stability is the normal mode of operation for this pair; but sharp bursts of volatility are possible for the SNB’s rate decision.

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         ·         A daily chart of EURCHF price action shows how common congestion is. However, there are larger range boundaries that develop through this chop. Currently, support stands at 1.5125 and has been established as a boundary to multiple swings, a notable 38.2% of the 3/10 to 16th surge, and the 200-day SMA. 

         

         [B][I]Suggested Strategy[/I][/B]

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         ·         [B][U]Short[/U][/B][B]: An entry of 1.5135 is significantly above last week’s swing low.[/B]

         ·         [B][U]Stop[/U][/B][B]: Placing the stop at 1.5105 seems tight; but this pair has a small average range. To secure profit, move the stop on the second lot to breakeven when the first target hits.[/B]

         ·         [B][U]Target[/U][/B][B]: The first objective [/B][B]is greater initial risk (50) at 1.5185. The second target is 1.5265. [/B]

                         [B]Trading Tip [/B]– There are a number of pairs that look as if they are carving potential range setups; but the risk of a breakout (or even false breakout) is in most circumstances far too high. Despite the lack of direction behind big fundamental themes (risk appetite, growth prospects, dollar selling), volatility is high enough and respect for technical levels low enough that seemingly solid range boundaries are giving way. EURCHF suffers from the same general affliction; but the burden of frequent and sudden swings in price action are much lower. This pair has a very limited response to risk trends and event risk is generally assimilated with little overall impact on the exchange rate. However, there is a very specific concern when it comes to price action: Swiss monetary and economic policy. The SNB cannot realistically lower its benchmark rate any further than its current level; but they can keep up their battle to intervene and forcibly depreciated their currency (which works in our favor). Given the regularity of false breaks across the market, we still have to be wary with our setup. As such, we will cancel any open orders before Friday’s close.  


Event Risk for the Euro Zone and Switzerland

Euro Zone – The euro has been a fundamentally stable currency for months now. Growth numbers have confirmed the region’s two largest economies have returned to positive growth, the policy authorities have been transparent in their turn to a neutral policy and there has been little discussion about any financial troubles lingering in the European markets. This has decoupled the currency from trends in risk appetite; but the link has not been fully broken. As the foil to the US dollar, the euro will indirectly feel the burden of sentiment that guides the highly-sensitive dollar. Another beneficial condition for holding a range is the light economic calendar. Among the indicators scheduled for release, few if any have a history of making a notable influence on price action. The second quarter Euro Zone employment report has a considerable lag. The regional trade report and inflation data are fundamentally noteworthy; but from a speculative perspective, the member data is fully accounted for. The German ZEW survey is one of the few with a timely and unpredictable essence; yet it has a spot past for encouraging volatility.

Switzerland – It isn’t often that Swiss data can elicit a significant response from the franc. However, the events scheduled for release over the coming week may have the necessary influence to drive the currency to volatility, breakout and even trend. Of primary concern is the SNB rate decision scheduled next Thursday. Just one step away from a zero interest rate policy, policy makers aren’t likely to lower their benchmark rate any further; but economic hardship will certainly keep the dovish pressure on. Commentary and/or unorthodox policy, on the other hand, can catch the market off guard. The central bank has been very vocal about its intervention (trying to ‘jawbone’ the exchange rate along with its direct influence) and the outlook has maintained a very distinct, bearish bias. Other notable indicators will be the ZEW survey, retail sales and 2Q factory activity gauge. The latter report will be a lead in for GDP.

                                               [B]Data for September 11 – September 18[/B]

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                                   [B]Data for September 11 – September 18[/B]

                                                     [B]Date (GMT)[/B]

                                   [B]European Economic Data[/B]

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                                   [B]Date (GMT)[/B]

                                   [B]Swiss Economic Data[/B]

                                                     Sep 14

                                   Euro Zone Employment (2Q)

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                                   Sep 15

                                   Industrial Production (2Q)

                                                     Sep 15

                                   German ZEW Survey (SEP)

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                                   Sep 16

                                   Retail Sales (JUL)

                                                     Sep 16

                                   Euro Zone CPI (AUG)

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                                   Sep 16

                                   ZEW Survey (SEP)

                                                     Sep 17

                                   Euro Zone Trade Balance (JUL)

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                                   Sep 17

                                   SNB Rate Decision

Written by John Kicklighter, Currency Strategist for DailyFX.com
Questions? Comments? Send them to <[email protected]>.