The Euro Is Facing Short-Term Resistance

  • Although Merkel’s party won the most votes in the elections, it is going to take a lot of time and negotiations for her to form a governing coalition
  • Market position is currently quite heavily long EUR (FXE) and short USD (UUP)
  • Technically, the EUR/USD is forming a short term top on the daily charts

Although exit polls show that Angela Merkel’s center-right Christian Democrat-led alliance has secured 33% of the overall votes, she is now faced with a daunting task of forming the next government as she does not have an outright majority and the leader of her coalition partner from the previous government, Martin Schulz of the Social Democrats, has declared that they will be going into opposition after garnering only 22% of the votes – their worst electoral result since 1949.

The rise of the Alternative für Deutschland ((AfD)) is particularly worrying as this is the first time that a far-right party has managed to win seats in the Bundestag since the immediate post-war period. In the previous election in 2013, the AfD could not even manage the minimum 5% required for a party to have any seats in the Bundestag but a surge in voter discontent over Merkel’s refugee policy has led to the party winning 13.5% of the votes this time round.

However the government is formed, the task of reaching a consensus to forge policies is all the more harder given that this is the first time since 1953 that six parties are poised to enter the Bundestag. Until a governing coalition is forged, political uncertainty remains and that is not something that a market likes. Read more here>>>

Why The Swiss Franc Will Weaken Massively When The ECB Starts To Taper

If you have been keeping track of our views, you will know that we went long EUR/CHF at 1.1163 and recently added to the position. We have articulated the reasons why we are bearish CHF before and continue to believe that it will be a theme for many weeks to come. We recently published an article on on the above. We believe so strongly in this trade because… Read more>>>

CHF: Will The SNB Embrace The Weakening Currency?

  • Swiss National Bank (SNB) meets tomorrow. The Swiss Franc (CHF) has weakened more than 5% since the last they met.
  • Given recent weak economic data (GDP, CPI and retail sales), the SNB has no reason to change its stance for continuing with the ultra easy monetary policy.
  • SNB President Jordan is unlikely to change his rhetoric about the “significant overvaluation” of CHF

The SNB meets tomorrow, and though the CHF has weakened in recent weeks, it is still in the zone of significant overvaluation. The SNB is unlikely to do anything other than stick to its current ultra easy monetary policy.

It is telling that even after all the uncertainties cause by North Korea, EurChf is trading close to its highest levels since the 1.2000 floor broke in early 2015.

As the world starts to remove stimulus (The BoC & US Fed have already started and ECB is considering tapering options) that was implemented to cope with emergency conditions, the SNB is likely to be one of the last to exit (a toss up between BoJ & SNB).

Consequently, the Chf is likely to continue on its weakening trend for the months ahead. As long as 1.1050 is not violated, the EurChf is technically headed for 1.2000 and beyond.

Monthly EURCHF Ichimoku Chart – [Source :]

Disclosure: I am/we are long EURCHF.

It’s Not Too Late To Hop On The Canadian Dollar Gravy Train

  • Last week, the Bank of Canada surprised the market by hiking the benchmark interest rates by 0.25% to 1.00%
  • Economic data from Canada has continued to surprise to the upside
  • Fundamentals are strong, and so are the technicals (see charts below)
  • Breaking to new lows last seen in mid 2015, the trend is set to continue.

The BoC surprised the market with a hike and a statement that shows that their intention of removing “considerable” amount of stimulus from the system remains. This is the second hike of this cycle which started with the hike in July.

In the age of ultra dovish central bankers who have a tendency to wait and see and hike at a glacial pace if at all, this is as hawkish as you can get when you are living in a world full of uncertainties such as Trump policies/tweets and the recent North Korean tensions.

Clearly, the economic data is giving the BoC the confidence to do this. Their statement spoke of stronger than expected growth both in Canada and globally. With strong commodity prices of late, the Canadian dollar (NYSEARCA:CAD) clearly has all the fundamentals aligned for the strengthening trend to continue.

With growth continuing to be strong (as evidenced by the latest GDP YoY growth of 4.5% vs market expectations of 3.7% released two weeks ago) and financial conditions remaining easy (stocks making new highs every other week), the fundamental reasons for continued CAD outperformance is strong.

What about the technicals?

Weekly Ichimoku Chart for USD/CAD (Source : – Stock Market Quotes & Financial News)


With the decisive break below the previous two lows (indicated by blue horizontal on chart), as long as 1.2450 resistance is not breached, the downtrend in USD/CAD is set to continue. I would be selling any bounces to the 1.2200 handle with a stop above 1.2450. The near term support would be at 1.1960 with an eventual target of 1.1000.

Given that the fundamentals, technicals and central bank policy are pointing in the same direction, it is not too late to jump onto the train as it is early days yet!

Disclosure: I am/we are short USD/CAD.

Additional disclosure: …and looking to sell more!