As the latest SNB Monetary Policy Assessment approaches there has been speculation of an impending move by the SNB to raise the floor of the EUR/CHF to 1.25 or perhaps 1.30 from its current 1.20 level. But with the EUR/CHF trading in a tight 300 pip range the SNB may choose to let the market move first before the SNB takes further action.
Forex Market Trends
CHF – SNB Interest Rate Decision
As Thursday’s SNB Monetary Policy Assessment approaches there has been speculation of an impending move by the SNB to raise the floor of the EUR/CHF to 1.25 or perhaps 1.30 from its current 1.20 level. This speculation has increased following last week’s Swiss CPI release which showed the Swiss price level declined by -0.2% m/m during October. Over the month of September CPI fell by -0.1%. There are additional signs of cracks in the Swiss economy. The November PMI fell to 44.8 from 46.9. During Q3 exports have fallen by 1.2% q/q and GDP increased a tepid 0.2%. The data hints at further troubles for the export driven economy.
Despite the clouds on the economic horizon the SNB may not adjust the EUR/CHF floor as many market players expect. The most recent CFTC IMM data shows the market has turned bearish on the CHF with speculative shorts climbing to their largest position since June.
The central bank has been very conservative in its approach to managing CHF strength. With the EUR/CHF trading in a tight range of 1.2130-1.2470 over the past two months the SNB may have little to gain by increasing the floor at this time. The SNB may instead choose to be conservative on Thursday and let the market make the next move.
EUR – EUR Begins to Stabilize
Data out of Europe has helped the EUR to stabilize following yesterday’s sharp decline. Bond auctions from both Spain and the EFSF were well subscribed. Both the German ZEW and the European sentiment surveys also showed improvement which helped the improve market sentiment.
That said the threat of additional credit rating cuts for both sovereigns and Spanish banks has not gone unnoticed. Additionally there are reports that Commerzbank AG is in talks with the German government for receiving state aid.
Last week the ECB only purchased government bonds worth EUR 0.6 bn versus EUR 3.7 bn in the previous week. This is the one of the smallest amounts purchased since the bond buying program was established in 2010.
With the ECB showing limited support for the European debt crisis the burden will fall on politicians. Given the most recent EU summit failed to earn support from the financial markets this does not bode well for the EUR in the near term. The EUR/USD has support at 1.3145 with some market participants looking at 1.3050, the 61% Fibonacci retracement of the 2010-2011 rally from 1.1875 to 1.4940. Resistance is back at the 20-day moving average at 1.3380.
Sterling was softer following inflationary data which showed UK prices declined in November. CPI for the month of November fell to 4.8% y/y from 5.0%, in-line with consensus forecasts. The fall in the price level supports BoE expectations of declining inflation which could turn into a threat of deflation in the UK economy. The BoE forecasts inflation to dip under its inflation target of 2.0% in 2012. Yesterday’s CPI results will likely increase market expectations for additional bond purchases and could weigh on sterling.
The GBP/USD has been consolidating the last 10-days but a close below the December low would open the door to the November low of 1.5420 and the October low of 1.5270. Resistance is found at 1.5740-80 where the 55-day moving average is located.
Crude Oil – OPEC Meets but Should Leave Output Unchanged
Today members of OPEC will be meeting in Vienna, their first meeting since June when participants failed to come to an agreement on supply levels. The main conflict occurred between Saudi and Iranian officials. There will be additional variables in the equation with the present output from Libya unknown and increasing supplies coming back online from Iraq. Tensions in Iran have also been building with threats of a European embargo on Iranian oil purchases. With oil prices continuing to trade near the $100 level expectations are for no change to the current production level of 30 million barrels a day. A no-change decision could help to ease spot crude oil prices in the near-term.
The 20-day moving average is now at 1.3420 and has served as a significant resistance level with the EUR/USD last closing above this line on November 3rd. While weekly stochastics are beginning to look oversold the monthly stochastics still have room to move lower. With the downtrend firmly entrenched the supports from the November low of 1.3260 and the October low of 1.3145 are within striking distance. A move higher may find willing sellers at the December high of 1.3550 and the November 18th high of 1.3610.
Sterling has been caught in a range trading environment between the levels of 1.5780 and 1.5660 where the 55-day moving average is found. With daily and monthly stochastics moving lower the November and October lows of 1.5420 and 1.5270 look to be within reach. Resistance for the GBP/USD can be found at the November 18th high of 1.5890 followed by the falling trend line from the August high which comes in at 1.5925.
The doji candlestick from December 8th stands out as the day’s low coincides with both the 55-day and the 100-day moving average. This may be the start of a base being formed for a test of the June 2007 trend line which comes in at 78.50. A break here will expose the post-intervention high of 79.50. To the downside the November 18th low of 76.55 is the last support prior to the pair’s all-time low at 75.56.
The pair continues to struggle to overcome the 0.9330 resistance level despite multiple attempts to move higher. A concerted move higher may find resistance at the 20-month moving average of 0.9380 followed by this year’s high of 0.9780. The downside may be capped at the support of 0.9065 which coincides with the pair’s 55-day moving average. Additional support is located at the November low of 0.8760.
The Wild Card
At 0.8450 sterling is pressing the lower line from the consolidation pattern that has formed since Q2. forex traders should note that a close below the support line would expose 0.8400 from the trend line off of the 2009 low. Resistance is found at 0.8665 from the November 22nd high.
Written by Forexyard.com