Franc Signals Downtrend as EU Political Uncertainty Fades

Franc Signals Downtrend as EU Political Uncertainty Fades

On April 26th, we had recommended taking a long position in the CHFJPY pair near 111.20, with a target price of 113.40. To binary traders, we had suggested investing in a call option expiring in one week. As forecasted, the pair hit the target. The CHFJPY pair rallied to close at 114.10 last Friday. The heightened political uncertainty caused by the French election pushed the Swiss Franc, while the US-North Korea issue at the door steps of Japan kept the Yen weaker. Now, we anticipate a short-term downtrend in the CHFJPY pair due to the reasons mentioned below.

One of the major reasons for the sharp rise in the value of the Swiss Franc, as mentioned earlier in the article, is the worsening relationship between the US and North Korea. In late April, Trump had openly stated that a major conflict with Pyongyang cannot be ruled out. However, Trump has now stated that he is willing to meet Kim Jong Un to diffuse the tension. Pentagon is also keeping a low profile to cool the situation. As normalcy returns, we may see the CHFJPY pair decline.

The victory of pro-EU candidate Emmanuel Macron in the French Presidential election is expected to keep the Euro bullish. As political uncertainty fades, investors would be inclined to sell the Franc. Additionally, the SNB is also expected to intervene as usual to keep the Franc weak in order to boost exports. Thus, fundamentally, political and economic developments are expected to push the CHFJPY pair lower this week.

The Bank of Japan is also meeting later this week to decide on the monetary policy. While analysts anticipate the bank to maintain its dovish stance, any optimistic message regarding the economy would propel the Yen. It can be remembered that during the April monetary policy meeting, the BoJ raised the GDP growth guidance to 1.6% in 2017, from 1.5% issued earlier.

The CHFJPY price chart indicates resistance at 114.30, as shown underneath. Technically, a negative divergence is seen between the price and MACD indicator. Thus, we can expect the cross to undergo a correction soon.

CHFJPY - Technical Analysis - 8th May 2017

A Forex trader can create a short position in the CHFJPY pair near 114.00, with an order to limit losses at or above 115.10. The short position can be covered near 112.20.

To generate returns from the forecasted downtrend of the CHFJPY pair, a put option can be purchased. The option can be bought from a reliable broker as long as the pair trades near 114.00. For a favourable outcome, the contract’s expiry date should be around May 16th.

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