USDCHF – Monthly Analysis for January 2015

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USDCHF closed the month of December at 0.9941 or about 3% higher for the month. Price action however sits bang on target at the noted past resistance level and close to a major falling trend line, which brings to question whether we will get to see a correction lower before prices resume their uptrend.

The monthly candlestick pattern also prints a very bullish sentiment indicating that the uptrend still has momentum and strength to push to new highs in the year.

USDCHF

 

A correction, if it should happen could see a target towards 0.9558 levels. However a break above the resistance at 0.9929 could see a brief decline down to the resistance to be tested for support which could put the USDCHF potentially as bullish as the USDJPY was last year.

Fundamentally, the Swiss Franc’s weakness for most part of the year was on account of the rising US Dollar’s strength. The pair gained more bullish momentum after last month in December; the Swiss National Bank surprised the markets by pushing its 3-month libor rate to negative territory. While the move was widely expected, the markets at large were expecting to see the SNB push to negative interest rates only after the ECB announced its QE purchase program.

The SNB was forced to act ahead of the ECB as the Russian crisis saw a flow of capital into the country. The downside to this being that the SNB is likely to be expected to ensure more monetary policy easing including physical forex intervention which could be seen as being very bearish for the Swiss Franc.

Coming hot out of the failed ‘Save our Gold’ referendum, the Swiss National bank, which has been amassing massive forex reserves is well positioned to do so (physical intervention) especially if it has to maintain its EURCHF peg of 1.20. Some contrarians views however whisper the prospects that the SNB could give up its peg of 1.20 should the Euro weaken significantly, especially with headwinds from political uncertainty besides the usual monetary policy rhetoric.

While history has many examples in the past where Central banks failed to maintain a fixed currency peg, the case for SNB will be quite interesting in the coming year with the most recent example being the Central Bank of Russia which gave up its peg on the US Dollar resulting in a free floating exchange rate. However, unlike the Ruble, a free floating Swiss Franc would instead see an immediate inflow of capital, which would make the Franc very strong and thus put pressure on the exports sector which primarily trades with the Eurozone countries.

With the monthly candle being bullish, we could expect to see the USDCHF head towards parity or 1.0 exchange rate against the US Dollar in the near term. Further SNB action could now be more of timing as the ECB’s monetary policy actions will likely put the ball back and forth between the ECB and the SNB, leaving the US Dollar, at least in terms of USDCHF emerging as the clear winner.

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