Euro Breaks Support Against Swiss Franc
The Euro initially tried to rally during the day on Friday but then turned around to break through the back of a hammer from the Thursday session against the Swiss franc. Ultimately, this is a market that measures risk appetite so it will be interesting to see how this plays out. The hammer candlestick from the Thursday session being broken to the downside does show a significant weakening of the Euro, so that being the case it’s very likely that the Swiss franc is going to continue to pick up strength.
Swiss Franc Safety
The Euro breaking against the Swiss franc suggests that the risk appetite of traders around the world is starting to fail a bit. That’s not a huge surprise considering everything that’s going on, and the relative safety of the Swiss franc certainly makes for a logical target. With all of the issues in the European Union currently, not the least of which is slowing growth, it makes sense that the Euro would fall.
To the downside, there is support near the 1.1050 level, and a break down below that would show a rush to the “risk-off” trade. When you look at the stock markets, you could be forgiven for thinking that we are in a completely “risk-on” type of party. However, that probably has more to do with loose monetary policy than anything else. It certainly not confidence in the global situation.
ECB to Continue Easing Policy
The European Central Bank is set to continue its monetary easing policy, and therefore that makes the Euro less attractive than many other currencies around the world. On the other side of the coin though, we have the Swiss franc, which of course has negative interest rates at this point. It isn’t exactly a rush to unattractive currency, it’s more or less a way to preserve wealth when you short this pair. The market does tend to move rather slowly, but it makes quite a bit of sense that the directionality continues.
Follow the trend
Without a doubt the most important thing you can do when trading currencies is the follow the trend. Currency pairs do tend to trend for several years at a time, and this one, of course, won’t be any different. As you can see, the 50 day EMA is just above and pointing lower. It’s very likely that we will continue to reach down towards the 1.10 level, which is a large, round, psychologically significant figure.
If we did break above the 1.12 handle, then the next major resistance barrier will be the 200 day EMA. Ultimately, there’s nothing out there right now that suggests we are going to change the overall trend, something that takes a lot of effort anyway. With that in mind, short term rally should be thought of as selling opportunities, just as his break down is. As far as buying is concerned, it’s almost impossible to think about doing that right now, although the 1.10 level will be psychologically important enough to perhaps cause a significant bounce.