- The euro has rallied quite nicely against the Swiss franc during the early hours on Monday as we gapped higher, pulled back a bit, and then bounced enough to show signs of strength.
- That being said, this is a very choppy and noisy market that is typically almost solely influenced by risk appetite.
We have been in a fairly well-defined consolidation area, but I do believe that there is one more level that we'll be watching beyond the previous 0.9250 level for the floor and the 0.95 level for the ceiling. And that new level is 0.9350, where we bounced from. By breaking the back of an inverted hammer from the Friday session, this does suggest that perhaps the 0.9350 level will remain important and potential support. If we can break above the 200 day EMA currently residing around the 0.9450 level, then it opens up a move to the 0.95 handle.
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Anything above there, and then the euro gets very bullish against the Swiss franc. I'm not necessarily bullish about the euro itself. I think it's probably more of a situation where the Swiss franc just isn't that strong. And it really shouldn't be, if you think about it, due to the fact that the Swiss National Bank has recently made a 50 basis point rate cut and showed signs of serious concern.
Carry Trade Funding Currency
Furthermore, it wouldn't take a whole lot to convince people to use the Swiss franc as a funding currency for carry trades. Although this isn't exactly where you would want to do that, but it will have a knock-on effect in this market, shrinking the value of the Swiss franc, not necessarily meaning that the euro was a massive winner overall. Again though, it does look like we're going to try this resistance barrier above again.
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