The recent bullish cycle from 0.76 low (since late Jan early Feb) to 0.787 was catalyst by strengthening of NZD and weakening of CHF respectively. NZD was enjoying a wonderful week with stronger than expected Retail Sales and peripherals economic indicators. CHF on the other hand faced a torrid weak as Swiss National Bank (SNB) President Jordan “predicted” that the Franc will continue to weaken in his latest scheduled speech. Jordan went on further to say that the 1.20 EUR/CHF floor is a “defensive move”, distancing himself from accusations of currency manipulations which is current hot topic. During the press conference, Jordan noted that reasons for introducing the 1.20 floor “are still valid”, and that exchange rates should be left to the markets though “extreme cases” will require SNB interventions in order protect Swiss interests.
Such talks rekindled hopes for a 1.25 EUR/CHF floor which was widely speculated back in 2012. The timing for Jordan’s speech couldn’t come any better as EUR was also looking softer recently since its fall from 1.37, the high of 2013. Reasons for another SNB intervention were looking stronger and hence speculators started to sell CHF aggressively, pushing NZD/CHF to match the 2013 highs formed in Jan.
However, price took a turn late last week, as it appears that sellers are still abundant above the 0.783 levels. Price has been oscillating between 0.758 to 0.783 since September 2012, and each time Stochastic peak has been successful in marking out the turns. This does not mean that Stochastic indicator is the holy grail of technical trading, but certainly using oscillators may give higher win rates when price is trading sideways. As it is, there isn’t any evidence that price is going to trend higher from here, so a move back towards 0.758 is on the cards. Nonetheless, nothing is 100% certain in the markets, traders may wish to seek further bearish signals to confirm what Stochastic is currently telling us.
The trading band can be seen even clearer from the weekly chart, though the channel between 0.758 to 0.783 can be expanded slightly to below 0.753, to better reflect the structure support and resistance found since 2011. Stochastic indicator on the weekly is also hinting at sell, but the bias is not as strong as the Daily Chart with readings still having space to grow with current value far from the previous reading’s swing high, and structurally current readings is similarly far from looking like a decent “peak” at a glance. Also, price action from 2011 Sep lows (the fateful day of SNB 1.20 intervention) still suggest that a longer-term uptrend is still at play, with current values not able to invalidate longer-term uptrend. A break below current channel’s floor may send bearish signals to the market, but current levels are still a fair distance for that to materialize.
Fundamentally, it is strange to see CHF strengthening with recent PPI and CPI both in the red. However, the recent pullback in NZD/CHF can be interpreted as exhaustion in the market as bulls may have overextended themselves on the back of the dovish SNB talk. Longer-term wise, a hawkish NZD will provide lift to NZD/CHF which goes in line with what the weekly chart is showing us. Prime Minister Keys was spotted saying that a strong NZD is actually beneficial as it allows for cheaper imports for consumers. It appears that the hawk which is RBNZ has found some political friends and that will certainly enhance Governor Wheeler’s bullish stance to maintain NZD at its elevated state.
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