Rare trading opportunity for the euro/franc

Volatility in the euro/Swiss franc (EUR/CHF) has been extremely compressed over the past few years, so we wouldn’t have blamed any traders for avoiding opening this note altogether. For those who have made it this far though, the recent price action is presenting a rare trading opportunity in the typically quiet pair.

At the end of last week, EUR/CHF (CME:RFU14) ticked down below the 1.2100 handle for the first time since January 2013. The primary catalyst for this drop has been a “regional safe haven” bid, as European traders feel more comfortable with their funds in Swiss francs (CME:S6U14) than euros (CME:E6U14) given the unrest in violence in Ukraine.

That said, there are signs that the prolonged conflict in Ukraine may be nearing an end: weekend peace talks in Berlin made “certain progress” according to the Russian Foreign Ministry (see yesterday’s note for more) and the Ukrainian military has raised its national flag over the police station in Luhansk, suggesting that the rebel stronghold may soon fall.

With the bearish fundamental catalysts potentially waning, it’s worthwhile to check in on the pair’s technical outlook. After hitting a 20-month low on Friday, rates have bounced back above the 1.2100 handle early this week.

Source: FOREX.com

While this may be just a simple oversold bounce (the RSI did hit its lowest level of the year at 25 on Friday), the Swiss National Bank’s commitment to keeping the pair above 1.20 remains strong, so it’s not surprising that buyers continue to emerge ahead of that level.

Moving forward, bulls are likely to become increasingly aggressive in buying dips toward the mid-1.20s. To the topside, strong resistance looms at the convergence of the 50-day MA and the bearish trend line off the May 2013 high in the 1.2140-50 zone, so rallies may struggle to break that barrier in the short term. That said, as long as there’s no reason to question the SNB’s commitment, traders may lean toward buying dips in EUR/CHF.

About the Author
Matt Weller

Senior Technical Analyst for FOREX.com. Matt has actively traded various financial instruments including stocks, options, and forex since 2005. Each day, Matt creates research reports focusing on technical analysis of the forex, equity, and commodity markets. In his research, he utilizes candlestick patterns, classic technical indicators, and Fibonacci analysis to predict market moves. Matt is a Chartered Market Technician (CMT) and a member of the Market Technicians Association. You can reach Matt directly via e-mail (mweller@gaincapital.com) or on twitter (@MWellerFX).

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