Market Overview

USD/CHF Dec. 18 – Edges Lower as Markets Hopeful over Fiscal Cliff

The Swiss franc has moved slightly higher against the greenback, as the pair tries to break out of the narrow range trading which has characterized this week's trading. The swissie enjoyed a superb run last week, as it gained over two cents against the US dollar. The Swiss franc followed the path of the euro, which recorded similar gains against the dollar. There were three major developments which led to the broad weakening of the US dollar.

First, there was tangible progress in the thorny debt crisis, as the Eurogroup agreed to release the second installment of about EUR 50 billion in bailout funds to Greece. The country received the first portion of EUR 34.3 billion on Monday, and the remaining funds will be delivered by March 2013. Second, the Eurogroup signed a framework agreement whereby the ECB will become the single supervisor for the 200 largest banks in the Eurozone.

The move aims to achieve closer financial integration in the zone, restore confidence in the bank sector and minimize future banking crises. If all goes smoothly, the ECB will begin its new role as a “super bank commissioner” by January 2014. Finally, the Federal Reserve announced that it would implement another round of quantitative easing (QE4), and purchase an additional $45 billion per month in Treasury holdings in order to boost the US economy. The Fed is stepping in order to bolster the US economic recovery, which has been moving at a frustratingly slow pace. Market focus has now shifted to the looming fiscal cliff crisis.

This refers to a combination of tax hikes and spending cuts if Congress does not take action before the end of 2012. The Republicans have softened their position, and it appears that any agreement will include tax hikes on the nation's wealthiest earners. However, the sides are still far apart on how deep the cuts should be to federal spending cuts, with the Democrats strongly opposed to cuts to major programs such as Medicare. Negotiations between the Democrats and the Republicans are in full gear, and lawmakers on Capitol Hill would love to hammer out a deal before the Christmas holidays next week.

Looking at the fundamentals, there are only two releases on Monday, both out of the US. With the market activity winding down toward the holidays, it could be another uneventful day for USD/CHF.

USD/CHF for Tuesday, Dec 18, 2012

USD/CHF Dec 18 at 10:50 GMT
0.9160 H: 0.9186 L: 0.9158

USD/CHF Technical

S3 S2 S1 R1 R2 R3
0.8930 0.9015 0.9130 0.9195 0.9275 0.9315

In the Asian session, USD/CHF continued to trade in a narrow range, and consolidated at 0.9175. The pair has edged downwards in the European session. Both resistance and support lines (R1 and S1) continue to hold firm. However, the pair has edged downwards, and if this continues, we could see some pressure on 0.9130.

• Current range: 0.9130 to 0.9195
Further levels in both directions:
• Below: 0.9015, 0.8930, 0.8850, 0.8760 and 0.8635.
• Above: 0.9195, 0.9275, 0.9315 and 0.9450.

OANDA's Open Position Ratios
Although the USD/CHF has been following EUR/USD and posting gains against the dollar, the pairs are mirror images as far as open position ratios. Trader sentiment is strongly tilted to long positions, indicating optimism that the dollar will rebound after its recent losses against the franc. With Q4 behind us, market attention has shifted to the fiscal cliff crisis. Any progress in the talks will be dollar negative, so we could see the franc hold onto its recent gains or even make further inroads against the dollar.

With only two releases on tap for Tuesday, and the markets winding down, it could shape up to be another quiet day for the pair. However, the markets are closely monitoring the fiscal cliff crisis, and any sign of progress would be dollar negative and the swissie could take advantage. Look for the Swiss franc to continue to remain firm against the US dollar.

USD/CHF Fundamentals
• 13:30 US Current Account. Estimate -105B.
• 15:00 US NAHB Housing Market Index. Estimate 47 points.

*Key releases are highlighted in bold
*All release times are GMT

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