Forex Playbook: July 11-17 – Swiss Bank Intervention Nears
July 11, 2010 at 13:01 UTC || By Forex Playmaker
Riskier assets enjoyed broad gains last week, which we anticipated, as shorts booked profits following the steep declines of weeks prior. The major US indexes each gained around 5% and are now trading toward the higher end of recent ranges.
In the Forex space, the euro continued to post gains against the US dollar, last trading at 1.2640. The British pound, on the other hand, was unable to add to recent gains against the US dollar, posting its first weekly loss since late May. At present levels, the pound appears to have more downside than the alternative, representing a potential medium-term trade setup that may see the pair trade down to $1.40.
In the week ahead, investors will take a close look at US corporate earnings in order to gauge the strength of the domestic economy. Specifically, earnings guidance will be put under a microscope, as signs point to slowing growth going forward, rather than retroactively.
Key economic data releases next week are expected to add some pressure to riskier assets going forward. Among others, Retail Sales and Core CPI numbers will be watched especially closely, as investors remain concerned of the prospects of deflationary environments in the U.S. and abroad.
Securities of Interest
EUR/CHF, USD/CHF
Analysis
The euro remains particularly weak against the Swiss franc and may be headed toward a major move lower in the days to weeks ahead. Last priced at 1.3350, the pair will likely touchdown at the 1.30 handle in short order, after which the Swiss National Bank is likely to intervene.
Traders should look to short the EUR/CHF on any strength, setting their targets to the 1.3050 level. With the SNB expected to intervene nearby, traders should flip their positions to a long USD/CHF position. As the central bank becomes involved by devaluing the franc, the US dollar should benefit significantly as a result.
