USD/CHF Forecast for the Week of December 26, 2011, Technical Analysis

USD/CHF had a slightly negative week for most of the sessions, but managed to bounce a bit to form a hammer. The range was tight, but it does show that the recent breakout point at 0.93 looks solid and the 0.95 level is within the sight of the market. The 50% retracement level is just below the 0.95 level, but the pair keeps making higher lows, suggesting that the pressure is building to the upside in it and that it is only a matter of time before it breaks out. When a market acts like this, it often has a “beach ball rally’ in which the price rises rapidly like a beach ball that is being held under water and is suddenly released – hence the name. This could be what is happening presently.

The Swiss National Bank is presently working against Franc appreciation, although it targets the EUR/CHF specifically. The selling of the Franc in that pair by the central bank will cause the Franc to fall in value against other pairs as well, this one included. The market also has the added benefit of including the US dollar, which of course is a safe haven play. In these types of markets, safety is essential to most traders. This causes a natural demand for the Dollar, and since the Swiss National Bank is working against the Franc – it only makes sense that the pair should rise.

Another thing to think about is the fact that Switzerland sends over 80% of its exports to the European Union. With that area going into recession, it will most certainly cause the Swiss economy to slow down as well. At the same time, we are starting to see signs of life in the US economy, so this scenario tends to make the rising of this pair make sense as well.

A daily break above the 0.95 level has us looking for the parity level, and with the SNB working against the Franc, we are only buying at this point. Any time this pair dips, we are interested in buying as well.