EUR/CHF fell during the Friday session after first rising in value during the session. The pair is currently being supported by the Swiss National Bank as the central bank said just a few months ago that the 1.20 level was the “minimum acceptable level” that the pair could trade at. The market seems to be hell bent on testing the resolve of the Swiss, and it seems that a lot of traders are about to get a nasty surprise when the SNB intervenes at a sub-1.20 level.
The resulting candle for the Friday session is a shooting star at the very bottom of the recent downtrend. The strength in the Franc is abosultely killing any sense of competitiveness by the Swiss, and as a result, the SNB will simply have to work against the strength of it. The Swiss send over 80% of their exports into the EU, and simply are finding that the Europeans cannot afford their goods anymore. The effect has been brutal on Swiss growth, and there is a real chance of the Swiss economy going into recession as a result.
Also, it should be noted that the Swiss will have to intervene for simple credibility. If the SNB actually didn’t get involved, there is a real chance the markets would pile into the short side of this pair. The market would certainly punish the Swiss for standing aside and the plunge would be massive.
The breaking of the bottom of the candle would normally be a sell signal, but seeing as the market is just 60 pips or so above that magic number, we are not willing to sell. The buying of this pair is without a doubt the preferred trade, but there are no positive signs at the moment that would get us in the market.
A break of the top of the shooting star would have us buying, or even a retest of 1.20 with some kind of supportive action has us long as well. The market can only be bought, and until the Europeans get their collective act together, we will simply have to wait for these couple of signals to buy. If the solution is ever found to the European debt crisis, this pair will be a massive buy and hold market.