Daily Report: Swiss France Remains Strong on Safe Haven Flow, Dollar Pares Some Loss

Swiss Franc continues to be the strongest currency this month, along with some noticeable strength in the Japanese yen in thin trading. Safe haven flows continued from Euro and Sterling to Swissy after after ECB said it failed to fully sterilize the excessive liquidity provided to the market since May. So as to fight against sovereign crisis, the ECB implemented a Securities Market Program allowing the central bank to buy government bonds. While the ECB pledged the purchases would be sterilized via deposits, recent data showed that it only absorbed from money markets 60.78B euro out of the 73.5B euro of liquidity it provided. EUR/CHF and GBP/CHF, as well as USD/CHF continue to trade near to record lows made recently.

Dollar, on the other hand, pared some of this week's loss after dismal 5 year note auctions reversed treasury yields' decline. $35b of 5 year notes were sold yesterday at a yield of 2.149%, much higher than the 2.103% yield traded just before the auction. Bid-to-ask ratio was at 2.61 times, down from 2.82 average of the past four auctions. This was in sharp contrast to Monday's sale of $35b 2 year notes, which was at 3.71 times bid-to-cover ratio, highest in more than two years. Focus will now turn to today's 7 year notes auction, which would likely trigger some more volatility in the greenback.

Economic calendar is thin today. German CPI is expected to 0.9% mom, 1.5% yoy in December. Eurozone M3 Money supply is expected to grow 1.6% yoy in November. Swiss KOF Leading indicator is expected to drop slightly to 2.1 in December.

Dollar index, which is heavily weighted in Euro, recovered strongly overnight ahead of 79.55 minor support following the intraday selloff in EUR/USD. The development turned intraday bias neutral for the moment. Also, with 79.55 support intact, rise from 78.83 might still continue and above 80.82 will target 81.44 high and above. However, break of 79.55 will argue that whole fall from 81.44 is resuming for 77.97 key support zone.

We talked about GBP/CHF's weakness yesterday, the outlook in GBP/AUD is not much better. The cross dropped sharply to as low as 1.5173 this week and broke 61.8% projection of 1.7603 to 1.5763 from 1.6422 at 1.5285 already. Near term outlook will remain bearish as long as 1.5419 resistance holds and further decline should be seen to 100% projection at 1.4582 next.

USD/CHF Daily Outlook

Daily Pivots: (S1) 0.9435; (P) 0.9520; (R1) 0.9607; More.

USD/CHF recovers mildly after making record low at 0.9434. But after all, near term outlook remains bearish with 0.9663 resistance intact. Current fall from 1.0065 is treated as part of the larger down trend and should target 100% projection of 1.2296 to 0.9916 from 1.1729 at 0.9349 next. On the upside, though, break of 0.9663 resistance will indicate that a short term bottom is formed with bullish convergence condition in 4 hours MACD and will bring stronger rebound.

In the bigger picture, the long term down trend is still expected to continue towards 61.8% projection of 1.8305 to 1.1288 from 1.3283 at 0.8946, which is close to 0.9 psychological level. On the upside, break of 1.0065 resistance is needed to be the first signal to indicate reversal. Otherwise, outlook will remain bearish.

Economic Indicators Update

Subscribe to our daily and mid-day newsletter to get this report delivered to your mail box