The EUR Pares Gains Following Swiss Franc Rally

The U.S dollar recovered versus the EUR on Wednesday after a swift move lower by the Swiss franc against both currencies. The EUR reversed its earlier gains as European shares fell, with concerns that Euro Zone debt problems would stifle the region’s economic growth, keeping investors averse to risky assets.

Economic News

USD – Dollar Hits 4 Year High on Rates Outlook

The U.S. currency moved towards a 4 year high against the EUR on speculation U.S. policy makers will reiterate that the economic recovery is gaining pace. The greenback gained to $1.1946 per euro from $1.1973 yesterday. The Dollar climbed as high as $1.1877 per euro on June 7, the strongest since March 2006. Against the yen, the U.S, dollar was flat at 91.34.

Currency traders also absorbed comments from Federal Reserve Chairman Ben Bernanke late Monday. He said he didn’t expect the U.S. economy to suffer a double-dip recession. The Dollar may continue to advance vs. the EUR on speculation the Federal Reserve will begin to normalize its monetary policy before the ECB with the U.S. economy recovering at a faster pace. Analysts said that both these factors are supportive of a strengthening Dollar.

EUR – EUR/CHF Rebounds Sharply

The EUR rose on Tuesday as investors booked profits a day after the currency hit its lowest level against the dollar since early 2006. Against the Dollar, the EUR rose above $1.20 after tumbling to $1.1876 on Monday, its lowest level since March 2006. But analysts said the market was still anxious about debt levels in several Euro Zone countries and debt auctions this week from Portugal and Spain.

The EUR also hit an all-time trough below 1.38 Swiss francs but rebounded sharply, with traders citing Swiss National Bank (SNB) intervention to weaken the franc. Data showing how much Switzerland has benefited from the European debt crisis pushed the Swiss franc to a new high versus the EUR. Analysts said that may have prompted some intervention by the Swiss National Bank — either by buying EUR against the franc or the U.S. dollar. The EUR abruptly rebounded from a low against the Swiss franc earlier spurred talk of intervention by the Swiss National Bank. The SNB has intervened since 2009 to prevent excess franc strength but slowed its EUR purchases recently as the EUR fell below 1.40 francs.

The market remains bearish on the EUR generally, with Monday’s four-year low of $1.1876 still a downside target, followed by expected options triggers around $1.1850.

JPY – Yen Falls on Asian Stocks Rally

The Japanese yen weakened from an 8 year high against the EUR as Asian shares rebounded and Federal Reserve Chairman Ben Bernanke said the U.S. economic recovery was intact. The currency also weakened on speculation that a new Japanese government may favor a weak-yen policy. Japan’s currency declined to 109.61 per EUR from 108.95 in New York yesterday, when it touched 108.07, the weakest since November 2001. Against the U.S. dollar the Yen fell to 91.74 from 91.37.

OIL – Oil Trades above $72 Ahead of U.S Data

Crude oil rose on Tuesday as the EUR bounced higher, lifting oil ahead of inventory data expected to show U.S. crude stocks fell last week. U.S. crude inventories were expected to have fallen for the second straight week as import volumes declined, analysts said ahead of the weekly stocks reports. Crude gained as much as 30 cents, or 0.4%, to $71.74 a barrel. Oil climbed yesterday after Federal Reserve Chairman Ben Bernanke said that the improvement in the world’s largest energy-consuming country is “moderate paced.”

Technical News

The pair has recorded bearish behavior in the past several days. However, the technical data indicates that this trend may reverse anytime soon. For example, the daily chart’s Slow Stochastic signals that a bullish reversal is imminent. An upward trend today is also supported by the weekly chart’s RSI. Going long with tight stops may be the right move today.
The 4-hour chart is showing mixed signals with its RSI fluctuating in the neutral territory. However, there is a fresh bullish cross forming on the daily chart’s Slow Stochastic, indicating a bullish correction might take place in the nearest future. When the upward breach occurs, going long with tight stops appears to be the preferred strategy.
The pair has been range-trading for a while now, with no specific direction. The daily chart’s Slow Stochastic is providing us with mixed signals. The 4 hour charts do not provide a clear direction as well. Waiting for a clearer sign on the hourlies might be a good strategy today.
The USD/CHF has gone increasingly bearish in the past 2 days, and currently stands at the 1.1530 level. The weekly chart’s RSI indicates this currency cross may fall further today. However, the 4-hour chart’s RSI signals that a bullish reversal may take place today. Entering the pair when the signs are clearer seems to be the wise choice today.

The Wild Card

This pair’s sustained upward movement has finally pushed its price into the over-bought territory on the 4-hour chart’s RSI. Not only that, but there actually appears to be a bearish cross on the Slow Stochastic pointing towards an imminent downward correction. Forex traders have the opportunity to wait for the downward breach on the hourly chart and go short in order to ride out the impending wave.

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