Market News & Analysis
EUR/CHF Breaks Bearish Trendline Ahead Of ECB
Matt Simpson September 10, 2019 3:37 AM
Despite no obvious signs ECB have intervened, EUR/CHF sprang higher after warning of a bear-trap and warns in a change in trend.
We’d noted that SNB had been intervening with their currency to prevent the Swiss franc from gaining too much traction, yet not by quite enough to prevent it from trending lower. This was slightly frustrating, as the trend continued to print lower highs and test key support levels, whilst at the back of our minds wondering if SNB were going to ratchet up the pressure and create a bearish shakeout. Well, it turns out they didn’t need to.
EUR/CHF has seen a clear shakeout at the lows and momentum suggests we could be looking at a deeper correction. Despite closing beneath 1.0835 last Tuesday, an inverted hammer on Wednesday warned of a reluctance to push lower. Thursday’s bullish engulfing candle took it firmly back above support and created a 3-bar reversal pattern (morning star reversal) to suggest a bear-trap had been triggered. Furthermore, yesterday’s clear break of the bearish trendline further suggests a new directional move could be underway.
- From here, we’d want to see EUR/CHF build a level of support along the broken trendline, or the swing high near 1.0928.
- Currently resistance has been found near the 1.0962 low and 50% retracement level but, given the clear momentum shift form the lows, we’d consider buying a dip and use the 1.0881 low as the ‘invalidation point’ to the counter-trend idea
Keep in mind that ECB are due to meet on Thursday, so Euro crosses will be prime candidates for bouts of volatility. Whilst markets are expecting a 10-20bps cut, we also need to factor in revised staff projections and potential for asset purchases (with many expecting them to move into equities). Either way, there’s a lot of expectation for ECB to act so, if these are not met adequately, we could end up with a higher Euro.
GAIN Capital UK Limited (trading as “City Index”) is an execution-only service provider. This material, whether or not it states any opinions, is for general information purposes only and it does not take into account your personal circumstances or objectives. This material has been prepared using the thoughts and opinions of the author and these may change. However, City Index does not plan to provide further updates to any material once published and it is not under any obligation to keep this material up to date. This material is short term in nature and may only relate to facts and circumstances existing at a specific time or day. Nothing in this material is (or should be considered to be) financial, investment, legal, tax or other advice and no reliance should be placed on it.
No opinion given in this material constitutes a recommendation by City Index or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although City Index is not specifically prevented from dealing before providing this material, City Index does not seek to take advantage of the material prior to its dissemination. This material is not intended for distribution to, or use by, any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation.