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The combination of a strong recovery in the Euro and the rise in yields on the sell-off in government bonds is seeing Swiss franc longs desperately crowding for the exits. Is the CHF rally done?

The flipside of the Euro spiking higher for several days running and bond markets selling off steeply over the same time frame is a weak Swiss franc, as lazy longs are all rushing for the exits at the same time on the latest developments. Despite EURUSD’s strong rally, the EURCHF rally has been even more vicious, (so USDCHF has bounced significantly as well) evidence that the isolated Euro bearish trade on the EuroZone sovereign debt question have been even more focused in the EURCHF cross. The situation went into overdrive yesterday as rate spreads rushed wider. Clearly, positioning was not ready for this move as the trade had become one-sided (as is always the case for any chart that looks EURCHF’s or USDCHF’s of late). There’s always the risk of sudden change of direction, however, as soon as the next round of Euro worries sets in, as long as that is also accompanied by a fall in bond yields.

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Asset markets continue to be dominated by a growing optimism with risk correlated trades gaining across the board. Even slightly weaker than expected economic data out for China and Japan released today, failed to halt that “feel good summer feeling”. Currency markets were relatively quiet, with marginal USD selling. Most traders starting building long risk correlated positions way before the outcome of yesterday’s Greece votes were decided, suggesting how confident they were. Heck, even Justin Timberlake’s $35m acquisition of MySpace has been hailed has as an astute, strategic move. Well with July 4th weekend right around the corner, why spoil the happy mood?

With yesterday’s Greek austerity package implementation vote passing by 155 to 136 votes, sentiments have been shifted drastically. The majority of market participants are now looking for a summer risk rally, as the moderation in global growth has been pricing in, causing central banks to become more cautious on the pace of tightening. This doesn’t mean that there will be clear sailing for Greece and the EU, however it does look likely policy makers will have the summer off. Full article…

EURUSD Weekly Summary The EURUSD had a bullish momentum this week and now struggling around the upper line of my triangle formation as you can see on my daily chart below. Price is now in a critical technical point. My overall intraday bias is now bullish. A clear break above the triangle and 1.4550 resistance area could trigger further bullish scenario at least testing 1.4695 region. On the downside, immediate support is seen around 1.4450 – 1.4400. A failure to make a break above the triangle and clear break below that support area would keep my medium term outlook unclear and give another chance for another downside attempt testing 1.4320 even the lower line of the triangle.

Have a great weekend and see you guys next week.

Fundamental Forecast for the Euro: Neutral

An action-packed week left the Euro at the highest in almost a month after Greece successfully passed a new deficit-reduction plan – a scheme including tax hikes, spending cuts, and government asset sales – to pave the way for the disbursement of a critical tranche of EU/IMF aid in August as well as a second bailout worth 110 billion that ought to tide the country over through 2014. A largely ceremonial meeting of EU officials will officially announce the new plan after a meeting on July 3, but its passage seems to be all but assured after Greek Prime Minister George Papandreou braved political suicide to secure his end of the bargain and pushed through the austerity plan amid raging riots. While throwing more money at the Greek problem will certainly solve none of the country’s structural problems, the threat of an imminent default has been neutralized and a bit of celebratory Euro buying was logical enough.

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Elliott waves don’t merely reflect prices plotted over time. Each wave has its own “personality.” Listen to this video by EWI’s Wayne Gorman to learn more about the psychology behind the waves and how it affects your investment decisions.

This video was taken from the free Club EWI video series: Learn the Why, What and How of Elliott Wave Analysis. This 3-video series is a great way to get started with the Wave Principle. You can get these videos free with a Club EWI Membership.

Already a Club EWI member?

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In my previous update on emerging market currencies, I wrote that in the short-term, it’s important not to lump them all together; high-yielding currencies must be distinguished from low-yielding ones. In this post, I’m going to backpedal a bit and argue that over the medium-term and long-term, emerging market currencies as an asset class are still a good bet.

Most emerging market central banks have already begun to tighten monetary policy in order to mitigate against runaway inflation, overheating economies, and asset bubbles. You can see from the chart above (where a dark shade of green signifies a higher benchmark interest rate) that the overwhelming majority of high-yielding currencies belong to emerging market economies. (In fact, if not for Australia, it would be possible to say all high-yielding currencies).

While industrialized central banks are also expected to begin tightening, the timetable is much less certain, due to slowing growth, high unemployment, and low inflation.

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