- The Euro has rallied significantly during the early hours on Monday against the Swiss franc, as we continue to see a lot of upward pressure.
- This makes a lot of sense, due to the fact that the European Union looks to be exiting a recession, despite the fact that the European Central Bank is also looking to cut rates sometime in the next couple of months.
- However, on the other side of the equation we have seen the Swiss National Bank already cut rates, and therefore it makes quite a bit of sense.
Technical Analysis
The technical analysis of course looks very bullish, with the 50-Day Moving Average (EMA) all the way down at the 0.9750 level and rising. This was a general area of consolidation, so therefore it should have a lot of order flow. That order flow should be thought of as support, and I think you need to look at it through the prism going forward.
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On the upside, you have the 1.00 level, which is also known as “parity.” This is a major barrier psychologically, but over the longer term, it really doesn’t mean much. The euro will continue to climb over the longer term as you get paid to hang onto it against the Swiss franc, although an interest rate cuts would put a little bit of a dent in that trade. The Swiss National Bank of course likes a week or Swiss franc against the euro, because 85% of the exports from Switzerland end up in the European Union. In other words, it makes Swiss products affordable.
Short-term pullbacks at this point in time should continue to be buying opportunities, and I will treat them as such. I am short the Swiss franc against multiple currencies, and the euro won’t be any different. Quite frankly, we are looking at massive carry trades across the Forex world involving both the Swiss franc and the Japanese yen, and I just don’t see how that changes in this environment. However, the one thing that you need to keep in the back of your mind is if we do see some type of major geopolitical event, it could cause the Swiss franc to strengthen temporarily.
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