Forex: USD/CHF, EUR/CHF gains as safe-haven flows reverse

on Jan 13, 2014
Updated: Oct 21, 2019

**, Monday 13 January:**

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The outlook for advanced economies is improving as momentum shifts up a gear in the euro zone, according to the Organisation for Economic Cooperation and Development today. The leading indicator for the OECD’s 34 members rose to 100.9 in November from 100.7 in October, moving further above the long-term average of 100 and now at its highest level since March 2011, signifying that global growth is firming.

The data has undermined the safe-haven appeal of the Swiss franc, which has in trading so far today lost support against both the euro and the US dollar.
On Friday, Morgan Stanley added a long USD/CHF position at 0.92025 to its medium-term macro portfolio. The trade has a stop-loss order at 0.8850 and a target of 0.98.
Morgan Stanley analysts believe the franc will come under pressure in 2014 because of “overinvestment in the Swiss housing market, which may be unproductive and could ultimately lead to a bubble”. They see the franc gradually turning lower because Swiss banks are likely to increase lending this year. “At the same time, we note that overseas lending by US banks has been declining, which should offer support to [the] USD.”

Over at Citigroup, strategists think that the USD/CHF should be bought on dips “ahead of US data this week”.
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Despite the sharp reversal of the USD/CHF last week, momentum has yet to turn bearish. The Relative Strength Index on the 4-hour chart is currently sitting on the verge of a line of support which has limited bearish impetus since 19 September (see chart above). If the momentum gauge recoils and rejuvenates the bulls, there could potentially be another retest of the 100-day SMA.

Contrariwise, slippage below the psychological level of 0.90 could see a targetting ofs 0.8973 and below.
Right now, the USD/CHF is trading at around 0.9029, up 0.06 percent intraday.
The Portuguese CPI for December checked in earlier today at 0.4 percent m/m, beating the market consensus for a flat reading. In November, consumer prices in Portugal fell by 0.2 percent.

Spanish Business Confidence for Q1 rose to 113.9, up from 113.0 in the prior quarter.

Spain’s Industrial Production for November also came out better than the expected no change, with robust growth of 1.4 percent y/y. The previous reading was revised up to negative 0.4 percent from the flash 0.5 percent.
In the view of Danske Bank’s analysts: “The safe-haven unwinding of long CHF positions that anecdotally drove EUR/CHF higher last week is clearly visible in the latest positioning data: a good deal of CHF longs were taken off as sentiment surrounding the euro periphery got off to a good start in 2014.”
The EUR/CHF is currently trading at around 1.234, up 0.03 percent intraday.


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