The September Swiss Franc is holding steady overnight in light, range-bound trading. The currency has been consolidating since last week after reaching its highest level since July 5. The move in the market has been mirroring the action in the Euro. Trading activity in both currencies has been driven by speculation that the European Central Bank will take decisive action soon to battle the debt crisis.
Although much of this week’s tight trading range is being attributed to Fed Chairman Bernanke’s speech on August 31, some traders may be standing on the sidelines ahead of next week’s ECB monetary policy meeting. Since the news that ECB President Mario Draghi cancelled his appearance at the central bankers’ conference at Jackson Hole, Wyoming hit the markets earlier in the week, trading in the Swiss Franc has become halfhearted.
Although upside momentum has slowed this week, the market remains underpinned by a drop in bond yields in Spain and Italy. This event is fueling speculation that the ECB is preparing for another round of quantitative easing. Technical factors as well as skepticism that the ECB’s next move may only be effective over the short-run is helping to hold back additional buying, however, short-traders also seem to be unwilling to press the Swiss Franc lower ahead of any central bank announcement.
Swiss Franc traders are expected to react immediately to Bernanke’s speech on Friday. The direction is not known at this time which is probably why the market is currently hugging a major 50% or balance price at 1.0471. If Bernanke hints that additional quantitative easing is imminent then look for the Swiss Franc to rally against the U.S. Dollar. A failure to clarify the Fed’s position or hints that additional QE will be postponed until later in the year should pressure the Swiss Franc.
Technically, the higher-top, higher-bottom formation on the daily swing chart clearly shows that the main trend is up. The nearest swing bottom or change in trend price is at 1.0209. A trade through the August 23 top at 1.0488 will mean a new main bottom has formed at 1.0382.
The main range is 1.0902 to 1.0040 with a retracement zone at 1.0471 to 1.0573. The first level or 50% price is currently providing strong resistance. A trade through this level along with a breakout over 1.0488 is likely to mean a near-term test of the 61.8% or Fibonacci price at 1.0573.
Gann angle analysis places the Swiss Franc on the bullish side of a downtrending Gann angle at 1.0352 today. Last week’s breakout over this angle triggered a strong rally, but the follow-through was thwarted by the 50% price at 1.0471. A break back under this angle will likely mean a test of an uptrending Gann angle at 1.0310.
Besides the longer-term range, traders should also watch closely the short-term range of 1.0209 to 1.0488. This range has created a retracement zone at 1.0349 to 1.0316. A failure by Bernanke to deliver bullish news is likely to trigger a sharp break into this zone.
The market may trade sideways today ahead of Bernanke’s speech tomorrow, but this pent up energy should mean increased volatility on Friday. Upside momentum should increase on a trade through 1.0471 to 1.0488 while a penetration of 1.0382 should trigger a break to at least 1.0349.
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