Euro-Swiss Ready To Move Higher

Since Aug 10, the euro pulled back about 1.5% against the Swiss franc through last week low set on Friday near CHF1.5135. The fundamental backdrop has not changed. The Swiss National Bank remains committed to the quantitative easing strategy, which given the size of its domestic bond market, requires the purchases of foreign bonds and entails the sales of the Swiss franc. The euro is seen as the go-to-currency, given the pattern of good world economic news being good for the euro and as the market alternative to the US dollar.

The thing that has changed are the technical conditions and that suggest that the euro is a low risk buy against the Swiss franc. Whereas the CHF1.5000 was the bottom end of the range in Q2, in Q3 it looks to be near CHF1.51. The upper end of the range is CHF1.54. Today the euro looks poised to close above its 5 day moving average against the Swiss franc for the first time since the Aug 10 high was recorded. Momentum indicators appear to be turning higher, as are fast stochastics. The slower stochastics and MACDs have not yet turned but appear poised to in the coming days.

Swiss data in the coming days, including employment and KOF Swiss leading indicators should not negate the SNB's concern about deflationary risks. While it is too early for most of the major industrialized countries to contemplate an early exodus, Australia and Norway are thought to be on the leading edge, but Switzerland most likely will be a laggard.