It appears the Swiss keep “raising the floor” on the EUR/CHF trade!

Okay, I realize that this isn’t the only pair out there. However, it is likely the ideal candidate right now as it likely has much more upside potential than downside due to the constant intervening of the SNB - Swiss National Bank (Switzerland’s central bank).

Also, keep in mind, the trend is now upward recently…and no longer downward. Being that the EUR/CHF is one of the more widely watched/traded pairs by institutions (which produce such enormous volume for a “cross pair”), it won’t be long before their automated “trend following” programs kick in and aid the central bank’s efforts.

And…it appears that the SNB keeps going into the market and selling francs “sooner and sooner” all the time. See how it continues to “raise the floor” for the EUR/CHF pair. Click on the chart to enlarge it.

Sean Hyman

www.forextradingblog.com

P.S. - Want to learn more about fundamentals and technicals? Sign up for an inexpensive, only forex course today and we’ll show you how: http://www.mywealth.com/currency-trading.html

At the “Economic Turning Point”?

If we’re at the “economic turning point” as I believe we are…then that will be bad for the dollar, yen and Swiss franc but will be particularly good for those currencies that tend to be influenced by inflation, commodities and risk taking…which would be the Aussie dollar, New Zealand dollar, Canadian dollar and British pound…and arguably in that order.

As an additional note, if this is true…then the natural course of “Swiss franc weakness” may kick in and help the Swiss central bank out with a weaker franc. They’ve been proactively “selling francs” but there may come a time (and we could be there now) that the market actually kicks in and “aids” their intervention efforts for a weaker franc to the euro in particular. If so, between their collective “franc selling” and the market’s turning point…it could bode well for those that are long (buyers of) EUR/CHF. The Swiss are attempting to put in a floor on the EUR/CHF pair around 1.50-1.51. So anytime it gets to around the 1.51 region, one could go long the pair with a wide stop and low number of lots and probably experience a good “upside to downside” risk ratio.

I’ll also note that, so far, the Swiss have been able to reverse the daily downtrend on the EUR/CHF pair and have “held the line” quite well so far. You can look at it from most any aspect you wish and it still holds true. The pair is technically above its downtrend line, 50 SMA, 200 SMA, etc…all of which are bullish for the EUR/CHF pair. See the chart below. Click on it to enlarge it.

Want to learn more about fundamentals and technicals? Sign up for an inexpensive, only forex course today and we’ll show you how: http://www.mywealth.com/currency-trading.html

Also, get a free, real time demo trading station here: http://www.fxedu.com/practice-forex-account

Sean Hyman

www.forextradingblog.com

Risk Aversion Edges Up

Over the last few weeks, the stock market rally has fizzled and commodities prices have cooled off. It’s not clear what triggered this sudden surge in introspection (I would call it reasonableness). Regardless, the markets are now wondering out loud whether the optimism of the second quarter wasn’t a bit naive.

After all, there still isn’t any evidence that global economy has turned a corner. Virtually all of the economic indicators that matter are still trending downwards. In addition, the apparent stabilization in housing prices could prove temporary, as banks move away from loan modifications and back towards foreclosure. Rumors that the Obama administration are considering a second stimulus plan are already circulating

With second quarter corporate earnings season set to kick off next week, investors are once again bracing for the worst: “Given the strong performance of stocks relative to March lows, a reality check from earnings could be detrimental to risk appetite.” Adds another analyst, “It’s renewed risk aversion, triggered by mounting doubts about a near-term economic recovery that’s evident in the sell-off on Wall Street and the subsequent decline in risk assets in general.”

This pickup in risk aversion is also manifesting itself in forex markets, via the upturns in both the US Dollar and Japanese Yen: “The prospect of a slow and bumpy recovery remained the overriding driver of market sentiment and the dollar was soon reasserting itself as the currency of choice - apart from the yen.” Ironically, negative economic data that applies directly to the US is benefiting the Dollar, which goes a long way towards explaining the current market orientation. Currency traders have yet to turn towards comparative growth differentials (despite the predictions of some analysts) and remain firmly focused on risk. Meanwhile, “The yen rally has extended, driven by the liquidation of long-risk asset positions.” In other words, the carry trade has come under pressure as investors move back into low-risk government bonds.

The “uncertainty” narrative will likely continue to drive the markets for the near-term, as neither the optimists nor the pessimists have the data to support their respective positions. In all likelihood, the markets will trend sideways and safe haven currencies will see a slight inflow, until there is confirmation that the economy is firmly on the path to recovery.