Yen Weakens as Uncertainty Over French Election Decreases

Yen Weakens as Uncertainty Over French Election Decreases
April 26, 2017

 
In the past few weeks, the Yen was in great demand due to two main reasons. Firstly, it was the rise of nationalist parties and ultra-left candidates in the French election. The second reason is the large scale short covering of the Yen positions. For the fourth week in a row, according to the COT (Commitment of Traders) report, the number of short contracts in the Yen has decreased in the futures market. On the other hand, the Swiss Franc remains weak, mainly due to the intervention policy of the Swiss National Bank. However, the short-term trend of the CHFJPY pair would be decided by two factors: outcome of the French election and outstanding short positions in the Yen. As anticipated, Marine Le Pen and Emmanuel Macron are set to face each other in the second round of the French election. With the outcome of the first round of election as expected, the CHFJPY pair, which is currently trading at 109.80, is expected to rise in the days ahead due to the reasons provided below.

Emmanuel Macron, a 39-year old former banker, is currently the favourite to win the second round of the French Presidential elections. Even if Marine Le Pen sails through, still, the impact would be short-lived, according to analysts. In fact, stocks could mainly come under hammer due to overstretched valuations. Once the French election is over, the demand for safe haven assets are expected to decline and this is expected to bring down the Yen.

The Swiss Franc, on the contrary, has disappointed investors by staying weak. The SNB’s (Swiss National Bank) Intervention is one of the prime reasons for the prevailing weakness. However, things may soon change according to Deutsche Bank’s Robin Winkler. He pointed out that the recent research report from the SNB states that the Swiss Franc is not as overvalued as it was assumed earlier. The assessment was based on the recent shift in Swiss trade from Europe, which suffers from low inflation, to Asia, which is facing high inflation. Thus, a decline in the SNB’s intervention activity would strengthen the Swiss Franc. Overall, from the above discussion, it can be understood that the CHFJPY pair would undergo a rally in the short-term.

As shown in the image below, the CHFJPY pair has a strong support at 109.60. An increase in the momentum is also reflected by the ascending ‘on balance volume’ indicator. So, technically, the currency cross is expected to move northwards in the near future.

CHFJPY - Technical Analysis - 26th April 2017

A long position in the CHFJPY pair is advised at this point in time. The long position should be preferably opened near 111.20. To reduce losses, an exit order should be placed below 109.60. The long position can be sold for a profit at 113.40.

A binary trader can establish a long position in the CHFJPY pair by investing in a high or above contract. The odds of success can be increased by purchasing the option when the pair trades near 111.20. The contract should also remain valid for a period of one week.

Sammy

Sammy

Sammy is our forex expert, with over 20 years experience in the financial sector, she will be keeping you up to date with the ups and downs of currencies around the world


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