The big story in forex markets was seen with the Swiss Franc this week as traders test the validity of the price floor rhetoric displayed by Swiss National Bank Chairman Thomas Jordan. Current policy in the Franc is for prices to not appreciate further than the 1.20 level against the Euro (EUR/CHF), but this floor was technically breached yesterday as prices hit 1.9990 before making a modest bounce. Intervention so far has been mostly verbal despite consistent comments that the SNB will buy foreign currencies in unlimited quantities as a means for protecting the price floor.
Traditionally, the Franc is viewed by investors as a safe haven currency, strengthening during times of increased volatility and low risk sentiment and the latest moves were driven by the negative stories out of Spain this week. The latest Spanish bond auction produced sales of only 2.6 billion Euros, which matches the minimum target for the country. This pushed the Euro lower against most of the majors, including the EUR/CHF. Since the price floor in the EUR/CHF price floor was established, average levels have been seen at roughly 1.2070 after reaching parity in the previous year.
The SNB does not make disclosures when making an intervention into currency markets but one gauge for monitoring the central bank’s activities can be seen in the foreign exchange reserves numbers (which are released monthly), coming in at 237.5 billion Francs in March. This is a rise of roughly 10 billion Francs from February, so there is some evidence of currency intervention for the month. The SNB’s main concern is that a stronger currency will unfairly weigh on the country’s export companies, using 17.8 billion Francs last year to halt currency appreciation.
Markets are likely to be quiet today, with the Easter holiday leading to thinner trading conditions but we will still have the US Non Farm Payrolls release and traders will be paying special attention to the report as it will heavily influence trading directions that will be in play in the coming Monday session.
The EUR/USD remains focused on the psychological 1.30 level after failing at long term trend line resistance and a lower top was seen at 1.3380. The 1.30 area will next be a triple bottom is prices can manage to find some lift there but a break to the downside will accelerate losses and target areas several big figures lower in the longer term. The bear trend is firmly in place at this stage and only a break of the 1.3380 resistance will alter the bias.
The Nikkei 225 continues to roll over from elevated levels but with momentum slowing, it is looking like we will not get a test of support until some time next week. The next level to watch on the downside is seen at 9450, which is where key Fibonacci and historical levels at matching up and moving averages on the daily charts are likely to extend as well. Indicator readings, however, are inconsistent with this, as the MACD remains in positive territory and the RSI approaches oversold levels, both of which suggest a bounce off of support.