Wednesday, 6 Apr 2011

Euro and Swiss Franc on the Rise

Both the euro and the Swiss franc were trading higher at the opening of New York trading after strong German factory orders boosted the euro and an unexpected rise in inflationary pressures had the franc rallying.

The EUR/USD rose to a 5-month high following stronger German factory orders for the month of March, rising 2.4% from the previous month. The report had a significantly positive tone as the February numbers were revised higher to 3.1% from an original release of 2.9%. Economists forecasted the March report to rise only 0.6%.

Following the data release the EUR/USD moved above the 1.4280 resistance level off of the October high. As tomorrow's ECB rate decision approaches the euro should continue to bring strong bids as markets are beginning to price in further interest rate increases. With that in mind, the next target for the euro sits at the January 2010 high at 1.4580. A move above this level would target the November 2009 high at 1.5140. Support comes in at the rising trend line off of the January 2011 low at 1.4120.

The Swiss franc is on the rise after monthly CPI jumped 0.6% from the previous month. Economists had forecasted an increase of only 0.2%. While the appreciation of the franc has helped to tame some inflationary pressures, it appears higher commodity prices are also beginning to feed into rising prices in the basket of goods. Despite the recent dovish comments by the SNB, traders may begin to factor in a rate hike. The franc jumped after the data release and the USD/CHF traded as low as 0.9130, a level that coincides with the short term trend line from the pair's all-time low in March. A move below 0.9100 would put the bears back in the driver's seat and target the all-time low at 0.8904.

This afternoon Ivey PMI is expected to show a decline from last month's survey. This may be due to the geopolitical turmoil last month as the conflicts in the Middle East combined with the disaster in Japan may have trimmed purchasing managers' expectations. However, the downtrend for the CAD continues to strengthen as the USD/CAD dipped below the 0.9600 level. Traders should be eyeing the all-time low at 0.9050.