CHF

Selling CADJPY in a hope the USDJPY will remain on a upward bias till 94.60. While 85.60 for short term is achievable. CADJPY is exactly where I wanted talk about this for days. Right now looking for pairs in currencies that will remain range bound. This said, commodity play will just start to get a little volatile now. Earning will come as bearer of bad news. I usually shut all financial news channels during earnings, but I think back between fundamentals we will play nicely till end july when we receive the Europe Banks stress test results.

The strong rally from 1.04 to 1.17 has enabled the long term moving averages to turn positive and the odds favour buying dips towards the 61.8% retracement at 1.0930 which is also where the 100-day MA is. A test of this level still looks possible with the short term trend still bearish and having difficulty breaking back above 1.1160.

Dependent On Risk Sentiment; 90.00/91.70 Short Term Range

Any decent sized rallies in USD/JPY seem to be met with waves of selling from Japanese corporates and this is putting a serious cap in place. On the other hand, the market had gotten itself quite short in the JPY crosses and short-covering there has provided the bid tone for USD/JPY. This all means that USD/JPY is tied into fairly tight ranges with short-term parameters at 90.00/91.80 for now, once break out occur pace will takeover.

Risk Sentiment Still Fragile

The bullish sentiment which was emerging yesterday in the wake of the Chinese moves on the Yuan seems to have retreated somewhat. The EUR is lower across the board despite no major bad news emerging; EUR/CHF continues to make new lows, EUR/JPY has given back all of the strong gains made in early Europe plus some, and the EUR/USD is very much back in mid-range territory. The AUD has managed to maintain some of its gains but if risk aversion returns then it will also be pressured. Good luck today. Still looking out for recommendations and signs :)

Danthine went on to describe some of the methods by which these purchases could be sterilized and mentioned he was already seeing a lot of interest in liquidity draining operations. He said the SNB is very far from the point where it might be prepared to consider measures such as negative interest rates, in a bid to discourage speculators.

Entered a long EUR/CHF at 1.3775, target 1.40

Against the background of the many and varied uncertainties still afflicting markets maintain a sell on rallies view on risk trades is still the best option. EUR/USD will struggle to breach resistance around 1.2010 and remains susceptible to test support around 1.1826. GBP/USD could target fresh lows in a negative reversal, with potential to head back down to 1.3996.

Confidence has plummeted to extreme lows and it will be several months before appetite for risk trades returns. The AUD and NZD as well as many Asian currencies will struggle over the interim period before their appreciation trend finally resumes.

In contrast to the weakening of risk currencies, CHF strength is showing little sign of letting up. Switzerland recorded a massive 50% jump in FX reserves in May to CHF 232 billion from CHF 153 billion in April. This is not usually market moving data but the scale of the jump in reserves is huge and it is not just due to valuation changes. The Swiss National Bank (SNBs) effective abandonment of defending a particular level in EUR/CHF turned into more a smoothing operation but this did not stop the bank from massive FX interventions. Despite the interventions EUR/CHF dropped by 0.8% over the month.

Aside from alleviating upward pressure on the CHF the interventions had an indirect effect of reducing the pain of holders of CHF mortgages. E.g. around 30% of Hungarys bank loans and 60% of mortgages are denominated in CHF but countries across Europe have plenty of CHF denominated loans, especially Austria. Although Hungary announced steps to meet its deficit targets its woes are far from over.

The CHF has appreciated by around 3% since the beginning of May versus HUF, exacerbating the pain for CHF borrowers in the country. The fact that CHF strength shows no sign of letting up on the back of strong data and safe haven flows, the pain for these borrowers will only add to the problems for banks and borrowers alike in Europe.