The EURCHF Range is Stable but Still at Risk to GDP Volatility

Volatility is clearly widespread in today’s session with both the majors and yen crosses facilitating two of the market’s dominant, fundamental drivers. Not only is the risk of breakout discouraging range trades; but many of those pairs that could be approached with a high tolerance for risk have seen significant retracements and subsequently make it very difficult to develop reasonable risk/reward structured trades.

 Trading Tip – Volatility is clearly widespread in today’s session with both the majors and yen crosses facilitating two of the market’s dominant, fundamental drivers. Not only is the risk of breakout discouraging range trades; but many of those pairs that could be approached with a high tolerance for risk have seen significant retracements and subsequently make it very difficult to develop reasonable risk/reward structured trades.  There are a few pairs that have been fundamentally sheltered from the storm; and among those EURCHF seems to have the most stable pace. Technicals here show a very broad ascending wedge that will require closure and fits of high volatility. However, price action for this pair is far more responsive to fundamentals. The Euro Zone is Switzerland’s largest trade partner and the SNB makes it a point to follow the ECB on its monetary policy as much as possible. However, the true drivers here are the Swiss central bank’s active efforts to depreciate its currency and the global crackdown on safe havens like the Swiss banking system. This will likely keep the long-term bull trend intact; but that is not to be taken as proof positive that EURCHF can’t break down once again. Our strategy covers relatively tight stops and reasonable, nearby targets.  We will remove all open orders by Friday.

Event Risk for Europe and Switzerland

Europe – The euro’s economic docket has thinned out; but those indicators that are scheduled for release could carry heavy sway over short-term volatility. Top event risk is up for release immediately: the advanced readings of German and Euro Zone 2Q GDP. There is a lot of speculation surrounding the health of this economic leader in respect to its major counterparts. Officials have been clearly bullish on their outlook for a recovery and speculators have accepted the nation’s relatively high benchmark lending rate as a sign that economic conditions have to be better in the European Union than other world leaders like the US and Japan. However, growth forecasts from the IMF have been far more conservative with predicting a return to growth that would be far weaker than many of its largest counterparts. The 2Q GDP numbers will shed more light on this argument. Aside from these big ticket numbers, the ECB monthly report will fill in the blanks for official projections and then we have to look all the way out to next week for the German investor sentiment gauge for predictable significant event risk. 
 
Switzerland – Scheduled event risk for the Swiss franc is relatively light over the coming week; and the currency’s correlation to risk appetite has certainly diminished over time. However, we should not underestimate the influence speculative interests can have on this historical safe haven currency. Recently, only the Japanese yen crosses have taken to risk; but this is testament to the severity of change in risk appetite rather than its absolute direction. As for data, the retail sales report next week is the top indicator for fundamental influence. Aside from this report, trade figures and investor sentiment are secondary releases that will play into underlying growth forecasts but will likely come up short on volatility.

Questions? Comments? You can send them to John at jkicklighter@dailyfx.com.