Swiss Franc Trading Action Best Indicator of Greece Austerity News – USD CHF June... |
After making a recent attempt to breakout to the upside, the USD CHF failed to attract enough buy-side pressure to shift sentiment to long, leading to another break and the resumption of the downtrend. The late session break on Friday through the previous bottom at .8328, not only reversed the trend lower, but also triggered a break to a new historical low for the pair at .8308. The rise in the Swiss Franc last week in the face of an appreciating Dollar against all other majors made it clear that the Franc is the safe-haven currency at this time.
The main reasons for making the Swiss Franc the safe currency are two-fold. Firstly, the on-going problems in the Euro Zone are forcing investors to liquidate the Euro out of fear of contagion spreading to other peripheral nations. Secondly, concerns about the weakening global economy make the stable Swiss Franc an attractive alternative to other so-called safe currencies like the U.S. Dollar and Japanese Yen.
Despite the fresh low in the USD CHF, the trading action the past two weeks indicates indecision. This has most likely been fueled by uncertainty regarding the sovereign debt issues in Greece, the pending austerity vote and the bailout decision.
While it is highly likely that the Greek Parliament will pass its austerity measures on Tuesday, the time leading up to the final vote could be tumultuous. Currently, the markets are filled with nervousness especially since there are voices of opposition.
USD CHF traders should be aware of the consequences should the austerity measures fail. A failure to pass the budget cuts will put Greece in a position to default on its bonds. This is likely to cause turmoil in the Euro market, credit markets and international banking system. A disruption in all three financial factions is expected to send investors flocking to the safe-haven currencies, currently led by the Swiss Franc. While the Dollar is expected to gain ground overall, it is likely to feel pressure versus the Swiss Franc.
A vote in favor of the new austerity measures should relieve the pressures currently plaguing the Euro and the Euro Zone. The initial reaction should favor the Euro and commodity-linked currencies, pressuring the U.S. Dollar.
Since the market would be almost certain the bailout proposal will be approved, profit-takers and bottom-pickers would likely drive the USD CHF higher as investors reposition themselves in the wake of the positive news.
In summary, the USD CHF is likely to be the best currency pair to watch in order to gauge whether the market is siding with approval of the Greek austerity plan. The first sign that something positive is going to take place is likely to show up in the safe-haven Swiss Franc as traders would not want to be trapped on the wrong-side of the market when Greece’s Parliament passes its austerity plan.
About the author: Forex Mansion Analyst - James Hyerczyk
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