USD/CHF Daily Outlook Feb. 21, 2012

By: Christopher Lewis

USD/CHF has been bouncing around the current levels for quite a few sessions lately, and the level does in fact look strong. With this in mind, the pair hasn’t exactly been overly exciting, but this is the case with all Franc-related pairs as the Swiss National Bank has been actively working against the ascendency of the Franc.

The Swiss are actually concerned about the rate of the Franc against the Euro, and with good reason obviously. The Swiss send over 80% of their exports to the European Union, and the EU is well-known to have major economic issues at the moment. The Europeans are almost definitely going into recession, and with this the Swiss will find their biggest customer a bit stingy when it comes to buying Swiss goods. The higher valued Franc will add another reason for lackluster sales. The locals will simply choose to buy European goods as they will be cheaper on the margin.

The fact that the Swiss National Bank has put in a “minimum acceptable exchange rate” in the EUR/CHF will ensure that the pair will remain over the 1.20 floor in that pair. In a roundabout way, this is a floor in all XXX/CHF pairs. If the Swiss decide to intervene in the EUR/CHF pair, this pair will certainly rise in unison with it.

0.91 to 0.90

The 0.91 level is the start of the support area that has held this pair up lately. While in theory the pair could fall quite farther, the fact is that it is highly unlikely that the USD/CHF pair will plummet while the EUR/CHF pair simply sits still. Because of this, the USD/CHF pair will find that it has the same kind of “floor” that the EUR/CHF has.

Currently, the EUR/CHF pair is just above that level. In comparison, the USD/CHF seems to find 0.91 as important support. In a way, it has become a proxy for the 1.20 level in the other pair.

It is with this knowledge that we know this pair will only fall so far. The 0.91 level is the start of our floor, and I am looking for signals in this area. While the Monday session was light due to President’s Day in the United States, the resulting candle was a hammer, and a buy signal in my opinion. I am now long of this pair, and expect a bit of a move in the next couple of sessions. 0.93 is a reasonable area to aim for, and I even believe that 0.95 is coming in the relatively near future.