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EURCHF 1.2000 Floor is At Risk
As we have successfully predicted at the end of August, EURCHF weakness was inevitable. It is important to understand that the reason behind the fall is due a referendum that has been scheduled to take place in Switzerland on the 30th November. “Save Our Gold,” a referendum that will force the Swiss National Bank (SNB) to increase its gold reserves to 20% over the course of 5 years, To buy the gold, the SNB may use its fiat currency reserves, possibly EUR and USD, which will mean the central bank would be selling Euro’s rather than buying that will lead to the meltdown of the EURCHF floor.
Little attention is still begin paid to the referendum as the latest polls suggest a NO vote at the time of this writing. Even if the referendum passes it must still be approved by the Cantons, which may not occur as they are benefiting from dividends from the SNB, which may be affected if the referendum passes. In the worst case scenario, printing new money for buying gold is still an option although we believe it is highly unlikely at the time of this writing. In our view, the reason why the SNB failed to intervene to protect the floor is not to spark headlines that would tilt the polls to the YES camp. The SNB has layered orders in EURCHF to protect the floor, which has held so far at the time of this writing. In our projection for EURCHF, if the central bank does not intervene the floor would be breached and billions-worth of stop loss orders will be triggered. If the SNB will intervene, the headlines are likely to affect the polls, shifting more voters to the YES camp, which will force investors to downsize their CHF short trades that will strengthen the Swiss Franc (CHF) against a basket of currencies. As a result, EURCHF floor will be breached, We will continue to monitor Euro-Swiss and post updates at the bottom of this page when found relevant. Subscribe to be updated when on our latest trade updates and market research,
EURNZD Technical Analysis
Out focus for this week will be on EUR/NZD as our technical models suggest a bullish reversal is imminent. For our analysis we have used the weekly chart, which determines a bullish trend is expected in the FX cross. EUR/NZD painted a reversed Head-And-Shoulders (H&S) where the key support is seen at 1.5748, levelling with the left-hand shoulder of the reversal pattern. To concrete the left-hand shoulder, the 21 Daily Moving Average (MA, in green) was able to contain any further weakness in the cross. When the price first tested the 21DMA Euro-Kiwi gained over +300 pips in a single week.
EUR/NZD Weekly Chart
Please click on the chart to enlarge:
Aside the reversed H&S we also noticed an uptrend has been established from September’s low’s, posting higher high’s and higher low’s. The current dip is the second higher low, which could also be the second wave. If our trading strategy is correct, EUR/NZD should trade over 1.6220 within the next 45 days. We have decided to place a conservative take profit at the H&S neckline (1.6220) but it is subject to change in accordance to the progress of the trade. Subscribe to DDMarkets.com to be instantly updated when a modification is made our open trades in global markets. Although it is not our take profit, the 100% objective of the reversal should be near the 200DMA (in brown), currently at 1.6410. The protective stop loss order is layered at 1.5695 for the long trade, maintaining a decent Risk-Ratio (RR). As the Forex market is closed at the time of this writing, we will issue an update regarding the entry at 22:00 GMT.
From a fundamental angle, we believe the Global Dairy Trade (GDT) results on Tuesday, 18 November 2014 may be the trigger for the expected gains in Euro-Kiwi. There is a correlation between dairy products data and NZD. Fonterra, a co-operative group established in New Zealand and owned by over 10,000 farmers is responsible for more than 25% of global dairy exports. Fonterra revenue exceeds NZD 19 billion per annum. Any price changes in dairy products will affect Fonterra’s revenue, which will in turn affect the New Zealand Dollar. If the results of the GDT will show declines in dairy products it is possible the Kiwi will be heavily sold in the FX markets, inline with our EURNZD trading strategy. You may view the official GDT results at this page.
EURUSD Technical Analysis
In our previous EURUSD analysis we have maintained a bullish outlook for the pair although our protective stop was triggered at the entry after booking profits. We have discovered an intraday entry in Euro-Dollar based on the 4hr chart. Following the recent gains on Friday, which some suggest is as a result of stops being targeted by the market has caused the price to close above its 4hr resistance (black line), indicating further gains are due.
EURUSD 4hr Chart
Please click on the chart to enlarge:
The Japanese shooting star, held by the 100MA (in green) is warning that a retracement to the recent gains is possible. It is insufficient to execute a short trade as not all our technical indicators are inline with the shooting star, however, exercising dip-buying strategies may be a better approach. We estimate 1.2477 – 1.2495 to be the range for the long order. We are placing our long entry order (buy limit) at 1.2485, layering the protective stop loss order at 1.2448.It is possible the retracement may continue towards 1.2465 before rebounding. As this is not guaranteed, we are willing to incur the drawdown should such a scenario materialize. Our target for the long trade is 1.2580 with a RR of 1 : 2 (approx.). If the market price trades above 1.2546, the entry order should be terminated and our trading strategy for EURUSD will be revised.
Key Economic Figure
Aside the GDT data due on Tuesday, European Purchasing Manager’s Index (PMI) on Thursday is the key economic data for this week. The heavy selling on the yen as a result of the Bank of Japan (BOJ) decision to boost its Quantitative Easing (QE) program, which drove USDJPY above 116 will be countered by the Bank of Korea (BOK) as the central have said in the past the weak yen is having a negative effect on the South Korean economy. We are eagerly waiting for a short, technical entry in USDJPY that may suggest such actions from the BOK are due. Following recent FX intervention by the Reserve Bank of New Zealand (RBNZ), we believe if the yen will continue to tumble against the Korean Wong (KRW), a direct FX intervention is not theoretical.
17/11/14 UPDATE: The FX markets opened and EURNZD gapped lower to trade at 1.5741 at the time of this writing, We are executing the long trade at market price and modify the protective stop loss order from 1.5695 to 1.5670. The long trade has an improved RR due to the trading gap. A trade update was sent to all subscribers.
17/11/14 UPDATE II: EURNZD is trading at 1.5795 at the time of this writing. We are closing 10% of the long trade at market price.
18/11/14 UPDATE: Altering the protective stop loss order was a good call as EURNZD traded at 1.5677 before rebounding to current levels, 1.5805 at the time of this writing. As we have predicted, the GDT data weakened the New Zealand Dollar across the board (results: -3.1%). We are closing 20% of the long trade at market price and shift the protective stop loss order to the entry.
EURUSD trade was not in play as the market traded above 1.2546 before retracing lower, which highlight would negate our technical strategy for the currency pair.
19/11/14 UPDATE: EURNZD is trading at 1.5942 at the time of this writing, almost +200 pips profit. We are closing 25% of the long trade at market price and shift the protective stop to 1.5850.
EURNZD Weekly Chart (current)
Please click on the chart to enlarge:
You may see how the right-hand shoulder is being painted at the time of this writing. You view may view our latest market analysis on the homepage and subscribe to be notified on future market updates.
21/11/14 UPDATE: In light of the People’s Bank of China (PBOC) recent actions (rate cut), NZD and AUD posted marginal gains in the FX market, triggered the protective stop in EURNZD. We were able to realize a decent profit from the trade while capitalizing over crude oil, ensuring a decent profit is maintained.
Trade alerts are also issued in the weekly update.