Forex Magnum


USD CHF – September Outlook

Autore: FX Empire Analyst - James Hyerczyk

Following a prolonged down move in terms of price and time on the monthly chart, the USD CHF formed a closing price reversal bottom in August which is often the first clue that a market has reached a major bottom. The key to this formation is the confirmation which takes place when the market crosses the high of the previous month. In this case, the reversal bottom will be confirmed when .8240 is crossed.

Typically this chart pattern leads to a 2 to 3 month rally that is equal to at least 50% of the previous swing down. Based on the December 2010 top at 1.0065 and the August 2011 bottom at .7066, traders should watch for a possible rally between September and November to at least .8567. If strength should continue to develop, then the USD CHF may even continue higher into the 61.8% retracement level at .8922.

Fundamentally, money had been flowing into the Swiss Franc as the European debt crisis worsened. As traders should shelter from the weakening Euro, the Swiss Franc rose to record levels against the single currency and the U.S. Dollar. This unprecedented rally wreaked havoc on the Swiss economy which relies heavily on exports. In addition, the slow growth and the high currency price had set up a potential deflationary scenario for the Swiss economy. Inflation can be handled by most central banks, but deflation often takes longer to eliminate from an economy.

Enter the Swiss National Bank. The SNB has vowed to take aggressive action against the appreciation of the Swiss Franc. This is likely to mean an intervention; however, it may even try to devalue its currency by pegging a fixed price or floor against the Euro. Just the threat of an intervention/devaluation helped put in the low for the month in the USD CHF. Traders now seem to be waiting for further action by the central bank.

Look for the USD CHF to mount a strong rally confirming the closing price reversal bottom if the Swiss National Bank intervenes further or pegs the currency against the Euro. Even after a devaluation, the SNB will have to provide continual support to its stance or the action will fail. If the SNB draws a line in the sand against the Euro then look for excessive volatility throughout September.




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