USD/CHF: Bullish Candle, Bounce Ahead
Alp Kocak | Dec 19, 2013 07:33AM ET
The USD/CHF pair shot straight higher during the session on Wednesday as the FMOC has announced that it will begin to taper off of the bond purchase program. This is tantamount to quantitative easing being reduced, which of course is good for the currency in question. Because of this, we feel that this market will possibly get a little bit of a reversal here, and the massively bullish candle could be a sign of a significant bounce getting ready to happen.
All things being equal, the Swiss franc is typically a safe haven currency. The same can be said for the US dollar, so it’s possible that the markets are starting to abandon the need for the safe haven currency aspect of the US dollar, and is starting to actually focus on the fundamentals of the US economy for once. If that’s the case, it makes sense that money would flow into the United States and out of Switzerland, which unfortunately for the Swiss is highly dependent on what’s going on in the European Union.
European deflation could be a huge problem for the Swiss
If the Europeans do in fact start to see a bit of deflation, that will be negative for the Euro. As the Swiss send almost all their exports into the European Union, they will find that it’s difficult to sell their goods as the European simply will not be able to afford them. A devalued Euro means imports are difficult to buy, and let us not forget that the Swiss franc is extraordinarily high from a historical standpoint of the moment. Certainly people are starting to pay attention to the way they spend and Europe, and therefore it might be easier to buy goods from EU countries instead of Switzerland itself.
The shape of this candle does suggest that there should be more momentum to the outside, and therefore expect a bit of follow-through. Granted, we could get a little bit of a pullback, but any pullback that supports a supportive candle is enough of a reason for traders to start buying. It is to be believed that the 0.90 level will of course be resistive, so this may be more or less a short-term trade. But don't be ready to call reversal of the absolute trend yet.
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