EUR/CHF Forecast December 16, 2011, Technical Analysis

The EUR/CHF pair has been stuck in a range for quite some time now, but the Thursday session might have been the first real attempt to break out of it. The pair fell as the Swiss National Bank offered no new remarks about lifting the “floor” it has imposed in this pair at the 1.20 level. The market had speculated that the pair could be forced back above the 1.25 or even 1.30 level during the meeting of the SNB on Thursday.

The gap from early November has been filled as of close of business on Thursday. This pair now will decide if the range comes back into play, as this is the bottom of it, or if it is going to try and break even lower – perhaps to retest the 1.20 area that the SNB has promised to defend. The market typically will take on single central banks, but this pair is illiquid enough that the SNB actually can cause extreme havoc to short positions.

The Swiss economy looks to be going into recession, as their biggest customer Europe is as well. The Franc should by all means devalue naturally, but the Euro is so toxic currently that the desire to buy it for any real length of time doesn’t exist. The 1.25 level has been formidable over the last three months or so, and should continue to be. A close on the daily chart above that level would be the kind of signal that only comes around every few years – a long-term one that can be held onto. Until that happens, the best strategy will continue to be playing the range for short-term scalps between the 1.24 and 1.22 levels, and assuming the market will stay in that range by selling at the highs and buying at the lows.

Until the European Union figures out long-term solutions to the debt crisis, it is unlikely that any sustained move can be achieved in this pair. In fact, it is very possible this pair will go flat for months now, as the EU simply doesn’t look set to figure out their problems.