It seems as though the market close on Thursday has encouraged some fresh currency long positions with the Euro failing to show any signs of stalling and in fact accelerating to fresh multi-day highs beyond 1.3100.
This has propelled gains in the antipodeans, which even outperform the Euro on the day thus far, while all other major currencies are also tracking higher against the buck. For now, the key level to watch above comes in by 1.3170 which represents the 78.6% fib retracement off of the major August high-low move. The 78.6% fib retrace is the final defense for USD bulls, with a close above this level to likely open a complete retracement back towards 1.3335.
Relative performance on Friday versus the USD (as of 09:30GMT) –
1) KIWI +1.05%
2) AUSSIE +0.94%
3) STERLING +0.51%
4) EURO +0.42%
5) CAD +0.33%
6) YEN -0.05%
7) SWISSIE -0.13%
While the yen and swissie are also higher against the buck, gains in these currencies are only marginal, and this is completely understandable given the recent shift in policy from both respective central banks. In Japan, the central bank has aggressively reentered the market to intervene on behalf of the yen this week, while in Switzerland, the SNB has come out with a much more downbeat assessment of the economy, while also expressing deep concern over the negative impact that the appreciation in the franc is having on local business.
With the calendar fairly light in Friday trade, we would like to take the opportunity to present two medium-term to longer-term trading ideas that we feel are highly compelling:
The EUR/CHF cross has recently dropped to fresh record lows below 1.2800 before finally finding some form of relief over the past few sessions. However, we contend that there is plenty more upside ahead, with the monthly RSI only just now crossing up from oversold levels. Fundamentally, risk appetite should start to really pick-up, the cross should certainly benefit, with much of the relative strength in the Swiss franc over the past several months coming from its safe haven appeal. But we also see decent risk to the upside even in the event of a less upbeat market environment in light of the SNB’s serious concerns over the level of the Franc and its negative impact on the economy. It should also be noted that a long position, in this cross, offers a positive carry, albeit a baby carry, that effectively pays investors for every day that they hold the position. We contend that the yield differential which already favors the euro will become even more attractive going forward as the ECB eventually begins to reverse monetary policy.