Kay Van-Petersen
Kay Van-Petersen, macro strategist at Saxo Capital Markets, digests the market action seen in week 43 and gives his tactical positing. Van-Petersen favours a USD step back, sees gold consolidating, and believes that European equities are overheated.
Short term
Trade view / 24 August 2016 at 1:05 GMT

EURCHF: Consolidating ahead of next trend move

Managing Director / Technical Research Limited
New Zealand

The Swiss National Bank has succeeded in keeping EURCHF in a tight range over the last few weeks. The fact that the monetary base continues to rise (now 80% of GDP versus 20% in the US) suggests this has required a bit of FX intervention. Meanwhile, they have kept the deposit rate right in the middle of the target band, at –0.75%.

It’s a quiet week for data out of the US and Eurozone so the EURUSD is holding its recent gains. Attention is firmly focused on US Federal Reserve Chair Janet Yellen’s speech on Friday as a potential driver for some action in USD, in turn moving USDCHF and EURUSD. 

But with the Swiss seemingly determined to provide a floor for EURCHF, there looks to be more upside potential than downside for the cross if Yellen does provoke a market reaction.

Management and risk description

Over the past six weeks EURCHF has been undergoing broad consolidation, with the potential that this consolidation may be forming an Inverse Head and Shoulders reversal pattern (see daily chart below). Adding to the interest in this proposition is a similar (potential) structure evident on the hourly chart (refer hourly chart below).
A brief reaction to the 1.0870-1.0850 area would complete a potential Left Shoulders (as well as satisfying an orthodox mathematical retracement) and set EURCHF for a buying opportunity.

Whilst holding 1.0850/1.0830, a subsequent rally above hourly neckline resistance (at 1.0905) would complete this minor reversal structure, yielding an upside objective of 1.0975. The bigger prize, however, is then the completion of a six-week Inverse Head and Shoulders formation (refer daily chart) to yield an upside projection towards the 1.1120 level over coming days/weeks.


Entry: Today/tomorrow, any reaction to around the 1.0865 level is seen as a buying opportunity. Directly above 1.0905 (before being able to buy first) cancels.

Stop: 1.0826, initially.

Target: .50% at 1.1024 and 50% at 1.1116.

Time horizon: Allow several weeks for both targets to be met.

EURCHF hourly chart (click to expand)
EURCHF Hourly chart
Source: ThomsonReuters 

EURCHF daily chart (click to expand)
EURCHF daily chart
 Source: ThomsonReuters 

EURCHF weekly chart (click to expand)
EURCHF Weekly chart
 Source: ThomsonReuters. Create your own charts with SaxoTrader; click here to learn more.  

— Edited by Susan McDonald

Non-independent investment research disclaimer applies. Read more


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