The kings of currency manipulation, also known as the Swiss National Bank (SNB) may need to intervene for the first time in about two years because the recent euro weakness has been putting too much pressure on the franc. The EUR/CHF cap of 1.20 has been firmly in place and price is only about 60 pips away. The fear is that once the ECB announces their quantitative easing program, a gap lower may occur and the cap may be threatened.
The month of September has been an important one for this pair. In 2011, the cap was implemented and in 2012 it was defended. The current rally in the franc however is not as extreme as it was a couple years ago. The weekly chart above shows that price is currently in freefall but may find some technical support with the formation of a potential bullish butterfly pattern at 1.2025. Expectations should be fairly strong that the Bank will want to defend the peg before price is only a few pips away from it.
Key upside may eventually look to target the 50-day SMA at 1.2135 and eventually the 200-day SMA at 1.2200. If SNB is defeated or fails to act in time, major support will come from 1.1905.
The trade: Buy EUR/CHF at 1.2025 with a stop loss at 1.2125 and a take profit at 1.1975. The Risk/Reward Ratio is 1:2.
Edward J. Moya
WorldWideMarkets Online Trading