USDCHF, EURCHF – Swiss franc gains on uncertainties
Stress-tests of European banks didn’t do much to soothe worries over an exposure of European banking sector to a sovereign crisis in the euro zone. Not that we are surprised but that leaves all the uncertainties on the table. There is an obvious rift between European countries on how to approach the crisis so the market is afraid about the worst outcome – the next summit is as far away as Thursday and the consensus assumes nothing material will be decided here. Moreover, ECB is turning up the heat, reiterating that bonds of a defaulted country may not be accepted as a collateral. Meanwhile bond yields in peripheral countries are soaring, reminding that time is running out.
If that wasn’t enough, investors are more and more concerned about the outcome of the political games regarding the debt ceiling in the US. Obama initiates another meeting on Wednesday but it seems most likely that Republicans will try to negotiate as long as possible – that means until the solution is really needed by 2nd August. That will add to nervousness on the markets.
All those factors continue to drive the Swiss franc higher both versus the euro and the dollar. On the EURCHF, there was a chance for an upward correction two weeks ago but as problems in Portugal and Italy surfaced, an impressive bullish engulfment pattern was negated and the pair dived even more impressively to test 1,14 historical low – stunning by historical standards (1,50-1,80) for this currency pair. A large upward correction (across a declining channel to some 1,24) looks overdue on the pair but for now there is nothing to suggest such move.
Things look a little bit better for the bulls on USDCHF where we saw consecutive declines as well. While the market opened only a notch above lows from the previous week, the low was defended and there is a potential double bottom on H4 which could lead us to 0,8270. The pattern will be negated if the market makes new low (below 0,8080).
The week ahead – Europe, debt ceiling talks and quarterly results
We are entering the key phase of the reporting season on Wall Street and under normal circumstances that would be a chance for the sentiment to improve (especially as first results reported last week were promising). However, it must not be the case – investors are concerned about inability of politicians in Europe and recklessness of politicians in US and unless that changes we’ll see headlines about records on gold and CHF dominating the landscape.
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Przemysław Kwiecień PhD, Chief Economist |
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