“Save Our Swiss Gold” Rejected

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(As written on BTInvest, 01 December 2014. Click here to read from BTInvest.)

The Swiss voted against the “Save Our Swiss Gold” proposal last weekend.

The proposal that required SNB to hold at least 20 percent of its assets in gold has been rejected by a majority of 77%. SNB said it was “pleased to hear” of the result and “The SNB will continue to enforce the minimum exchange rate with the utmost determination and is prepared to buy foreign currency in unlimited quantities,” in their statement.

The immediate market response to the outcome of the referendum is spot Gold opening at 1159 lower than last Friday’s closing of 1168. The EUR/CHF opened slightly higher at 1.2035 too, compared to Friday’s closing. SNB had set a floor of 1.20 for the EUR/CHF exchange rate 3 years ago. With the prospect of further stimulus by the ECB, it could exert pressure on the EUR/CHF and may prompt the SNB to intervene in order to defend the 1.20 level. Besides direct intervention in the currency market, setting negative interest rates is one of the options available to SNB.

The outcome of the Swiss Referendum marks the beginning of an eventful week. With 4 central banks, ECB, BOE, BOC & RBA due to release their statements and US announcing their key manufacturing and employment data, we can expect the currency market to be pretty volatile this week.

ECB will release their official statement on 4th Dec. The recent decision by OPEC to continue with their production caused the oil price to drop to a 5-year low. This has presented a challenge to ECB in their bid to raise the inflation in the Euro zone. This may prompt ECB to decide on more aggressive easing. On the other hand, ECB Vice President Vitor Constancio said that the best time to evaluate the effect of the current stimulus is Q1 2015.

If ECB announces on more aggressive easing on 4th Dec, we can expect the Euro to weaken further. However, if ECB decides to remain status quo until Q1 2015, we may see a short term rally in the Euro.

Last week’s Thanksgiving Day presented an insight to consumer spending in US. The traditional Thanksgiving Black Friday weekend is famous for long queues and crazy spending.  According to the National Retail Federation (NRF), spending fell to $50.9 billion as compared to $57.4 billion in 2013. The number of shoppers came in at 133.7 million, more than 6 million lesser than the 140.1 million expected by NRF.

Although the figures may present a “not-so-optimistic” picture of the consumer spending, we have to look at the upcoming spending figures in December to give us a clearer view. It is important to look at the November and December figures because they account for 19% of total annual revenue of the retailers.

Besides retail spending data, the upcoming employment data is something to look out for as well. If the data is weaker than market consensus. Market is likely to price in delay in rate hike by the Fed again

Top News This Week

Australia: Cash Rate. Tuesday, 2nd December, 11.30am.              
I expect figures to remain at 2.5% (previous figure was 2.5%).

Europe: Minimum Bid Rate. Thursday, 4th December, 8.45pm.              
I expect figures to remain at 0.05% (previous figure was 0.05%).

US: Non-farm Employment Change. Friday, 5th December, 9.30pm.              
I expect figures to come in at 222K (previous figure was 214K).

Trade Call

Long EUR/CHF at 1.2060

On the daily chart, EUR/CHF is hovering around 20 plus pips away from the 1.20 level and the immediate resistance around 1.2050 level. SNB has vouched to hold the 1.20 level.  If the upcoming ECB press conference announces further easing, it may put pressure on the EUR/CHF to test the 1.20 level, thereby prompting SNB to take action to weaken CHF.

I expect prices to hover between 1.2000 and 1.2050.  A pending order with entry at 1.2060 is placed in anticipation of any intervention by SNB.  A stop loss of 70 pips is placed below the 1.20 level.  We will have two targets on this trade, exiting the first position at 1.2130 and the second one at 1.2200.

Entry Price = 1.2060
Stop Loss = 1.1990
1st Profit = 1.2130
2nd Profit = 1.2200

Mario Singh is the Director of Training and Education at FXPRIMUS, Asia’s fastest growing brokerage firm.

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