- Last week, EUR short squeeze pushed it firmer against almost everything else, and yet the CHF was able to gain from 1.2084 to 1.2050. Price action reveals a lot about sustainablity of CHF strength.
- EUR/USD strength has much to do with recent higher oil prices. ECB single inflation mandate (unequivocal tightening) vs Fed dual mandate (likely easing) = asymmetric monetary policy response expected.
- Watch EUR/CHF weekly chart closely. In the last 7 weeks, price action has come to a virtual standstill below 1.2120. Market clearly wants to test the SNB's resolve to hold the floor at 1.20 but needs a catalyst to provide cover. Perhaps another EU flare up, this time involving one of the other countries now that Greece is temporarily put aside. If the CHF can hold its own during a period of generalized EUR strength, imagine what would happen when the EUR is under severe pressure.
- Am prepared to go with a break below 1.20 here.
3 comments:
Added to USD/CHF short @ 0.8982
From RBS Research (John Briggs, Bill O'Donnell & Gabriel Mann) today :=
Comments and analysis: I continue to be astounded by any build-up of expectations that the G20 will ride to the rescue of Europe, or to Europe through the IMF. Domestically, into a Presidential and Congressional election this year, I personally would imagine it political suicide to support US funding for the IMF/Europe, at a time of significant domestic challenges. I can see the headlines or ads from one's opponent pointing out poverty or the financial problems of the proponent's district while the member is so happy to send money offshore. And never mind that the President, in an election year, would have to support it. I doubt he would gift wrap that issue to his challengers in the run-up to November.
Even more confusing is the idea that the rest of the G20 would pony up cash so easily. I'm, no expert on UK politics, but I imagine the feeling is much the same as here. More importantly, how can a political leader in say China, Mexico, or Brazil explain to their populace that they are sending money to affluent Europe to support their lifestyle and social structure? Think of it this way: according to the World Bank, the GNI (Gross National Income) per capita of Germany is $43,100. France $42,400, Italy $35,200, Spain $31,800, and Greece $27,000. Now here's some other G20 nations: Brazil $9,400, Mexico $8,900, China $4,300, Indonesia $2,500, India $1,300. Note this data is from 2008/2009 and I'm doing some rounding, but the point is clear. Would citizens in these states with little social safety net be pleased about their sovereign sending funds to Europe? Note this is quite different from these nations buying EU/EFSF sponsored debt, where you plan of getting your principle back eventually along with coupon. In my mind, that is a different dynamic, and one where an argument can be made. But I have a hard time seeing how expectations of G20 funding for Europe as hoped for this weekend would play out anytime soon.
I wouldn't risk taking on the SNB in the EURCHF. Even if there is a break of 1.20, some stops might get run but there will be a god-almighty whiplash back up as the SNB comes in with artillery blazing. I'd rather put in long EURCHf bid at 1.15 or 1.12 with a stop below 1.1. The SNB will likely carry this to 1.25 at least. I am not in this pair now, but might do this sometime in late March when I expect the SNB to act. - pandu.
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