steve.jarvis's picture

What now for the Swiss Franc following the SNB's withdrawal of 1.2000 support for EUR/CHF?

Regular readers of my blog will recall my bearish outlook for the EUR/CHF as long ago as last August, with the subject being revisited in November.  On both occasions I indicated where EUR/CHF "might have been" over recent years had the SNB not been intervening at 1.20. I was talking about 1.10-1.15 as a natural target area.  I went on to say that if it were not for the SNB continuing to provide a floor at 1.2000 it would be significantly lower based on the technical structure of the chart.

​So what now for EUR/CHF given that the SNB has pulled the rug from the 1.2000 floor?  For those who think that EUR/CHF is already very undervalued the 10 year (monthly candlestick) chart shown below will not make for happy viewing.  A major bear channel, the 12, 60 & 120 month (1, 5 & 10 year) moving averages bearishly aligned and falling, and MACD​ now back below the pivotal zero line to signal that the 2013 recovery high at 1.2647 marks a key lower top for the start of a further potentially significant long-term decline.  We have potential long-term (1-2 year & 3-4 year) measured move targets down at .7495 & .5890.

Now for the potential good news!  Yesterday's slide almost reached the 61.8% Fibonacci extension of the 1.6828-1.0071 (2007-2011) decline measured from the 2013 lower top at 1.2647, and a recovery has already regained the former all-time low at 1.0071.  It is possible that EUR/CHF could enjoy a significant further initial recovery phase.  I have identified the 1.1015-1.1359 area as a possible medium-term recovery target area for a lower top.  This area marks former support in the aftermath of the 2011 slide to 1.0071 and the mid-point of the 2011-2013 recovery (1.0071-1.2647).  It might be stating the obvious, but the former floor at 1.2000+ now reverts to huge resistance.

For those considering establishing long positions for a corrective recovery we would beware of a sustained reversal under the 1.0000-1.0071 area, as this could trigger a potentially quite deep retracement of the bounce from Thursday's new all-time low at .8599.

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