Once again the Swiss franc took center stage and dropped against
most major currencies, hitting a 2-week low against the greenback and
euro this morning in Asia on persisting speculation that the Swiss
National Bank would take further action to weaken the franc. Bet on a
EUR/CHF peg intensified after a Swiss newspaper report over the weekend,
SonntagsZeitung newspaper reported on Sunday that the SNB is likely to
set a target rate for EUR/CHF in coming days (probably 17 Aug) above the
1.1000 level. EUR/CHF surged to as high as 1.1325 this morning on such
report and USD/CHF also opened higher and rose well above last week's
high to around 0.7990. SNB Chairman Philipp Hildebrand and the other
policy makers are working closely to seek appropriate plan to stop
further appreciation in Swiss franc, some measures had already been
taken such as boosting liquidity in money market and cutting rates to
zero. Swiss government and lawmakers have expressed their support for
the central bank to take drastic measures to curb franc's ascent in
order to protect the country's economy. Having said that, some traders
considered the speculation of a EUR/CHF peg has been over exaggerated
and the franc may rebound this week when traders start realizing such a
peg may not materialize. In addition, with U.S. and eurozone still
having their own economic problem, Swiss franc remains the major
safe-haven target for investors, so if nothing happen on the rumor day
of implementation on 17 Aug, the Swiss franc may rally later this week.
The Japanese yen also slipped on fear of possible intervention by
Bank of Japan, the Ministry of Finance of Japan Yoshihiko Noda changed
his tone and indicated that he is ready to intervene in currency market
again. During a television show on NHK, Noda not only said he is closely
watching the markets but he would also take decisive and bold action if
it becomes necessary as an unstable situation is continuing. EUR/JPY
bounced above 110.00 to as high as 110.27 and USD/JPY also marked an
intra-day high of 77.10 on Noda's comment. The government echoed Noda's
remark and according to a policy overview approved by the cabinet, the
government considered the excessive FX moves will hurt economic and
financial stability and pledged to take decisive steps when necessary.
The government also wanted the BOJ to boost the nation's economy through
appropriate flexible policy. However, the Japanese yen then rebounded
after the release of stronger-than-expected Japanese economic data,
Japan's Q2 GDP shrank at a rate of -0.3%, less than economists' forecast
of -0.6%. Macro funds were seen buying USD/JPY since last Friday but
offers from exporters in good size are still noted from 77.20 up to
77.40 with some stops seen at 77.30 and 77.50.
The single currency opened higher this morning on the back of
rising EUR/CHF and EUR/JPY due to risk appetite as Asian stock markets
rebounded following Friday's strength in European and U.S. equities.
Stops above 1.4300 were triggered and traders are working on offers
reported from 1.4320 up to 1.4350. The single currency may continue to
be underpinned on speculation tomorrow's meeting between German
Chancellor Angela Merkel and French President Nicolas Sarkozy may help
easing concerns on French debt crisis contagion. The two leaders are
expected to discuss improvement of European governance and expansion of
EFSF's role and some traders hope them to come up with some measures to
contain the eurozone debt crisis.
EUR/CHF Daily Outlook
Daily Pivots: (S1) 1.0809; (P) 1.0952; (R1) 1.1218;
EUR/CHF jumps further to as high as 1.1366 so far today and momentum
remains strong. It looks likely that 1.1404 support turned resistance
will be taken out by the current rebound and that would raise the
possibly of medium term reversal. In any case, intraday bias remains on
the upside for the moment and break of 1.1404 will target 55 days EMA
(now at 1.1635) next. On the downside, below 1.1047 minor support will
turn bias neutral and bring retreat. But another rise will now remain in
favor as long as 1.0685 minor support holds.
In the bigger picture, while 1.0061 is a short term bottom, there is
no indication of trend reversal yet. Whole down trend from 1.6827 (2007
high) is still in progress. Medium term outlook will remain bearish as
long as 1.1404 resistance holds and we'd expect an eventual break of
parity. Nevertheless, note that a break of 1.1404 resistance will argue
that 1.0061 could indeed be a medium term bottom and stronger rebound
might then be seen back to 1.2399/3243 resistance zone.
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