GBP/CHF Breakout Eyed as Regional Manufacturing PMIs Show Improvement


Talking Points:

- Italian and Spanish PMI Manufacturing readings at 2 ½ year highs.

- Euro-Zone PMI Manufacturing at 31-month high.

- UK PMI Manufacturing off 2013 highs, but remains very strong.

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Intraday Price Perspective

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GBPCHF_Breakout_Eyed_as_Regional_Manufacturing_PMIs_Show_Improvement_body_Picture_1.png, GBP/CHF Breakout Eyed as Regional Manufacturing PMIs Show Imp...

A scan of this morning’s best and worst performers via the Strong/Weak app shows that the recent swell of generally improved European manufacturing data has investors feeling less worried about a return of the dark days of the Euro-Zone debt crisis. How do we know this? The few traders back at their desks for the short first week of 2014 are selling the Swiss Franc on the day, the regional safe haven that proved so popular in 2011 that the Swiss National Bank had to impose a floor against the Euro to stem capital flows.

As Japanese Yen weakness and weakness in precious metals signal a return to more normal economic conditions – markets ruled less by fear of a return to the depths of 2008 – continued weakness in the Swiss Franc suggests that risk-aversion is dissipating in the European FX space. Accordingly, as the GBPCHF is the top performer on a rolling 24-hour period, we view the recent pullback over the past few hours (as observed on m15, H1, and H4 timeframes) as a potential opportunity to position long for a break higher.


GBPCHF Daily Chart: July 2012 to Present

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GBPCHF_Breakout_Eyed_as_Regional_Manufacturing_PMIs_Show_Improvement_body_x0000_i1028.png, GBP/CHF Breakout Eyed as Regional Manufacturing PMIs Show I...

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- Price is basing above Sf1.4800/20, a key pivot level on several occasions the past 18-months: October through December 2012; May 2013; September 2013; and November 2013.

- The recent tests of 1.4800/20 have occurred after price has maintained the break of the descending trendline off of the July 2012 and May 2013 highs.

- The daily RSI (21) recently held 50 on the consolidation/pullback, suggesting that bullish appetite remains.

- A breakout higher ideally would be confirmed by a weekly close above 1.4920/25 (2013 high) alongside daily RSI (21) moving above 65.

- A return to the July 2012 high near 1.5475/80 would be targeted in 2014.

- Stops should be eyed near 1.4560 and the October and December lows at 1.4370.

Here’s the other data influencing and that will influence European FX price action today:


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GBPCHF_Breakout_Eyed_as_Regional_Manufacturing_PMIs_Show_Improvement_body_x0000_i1029.png, GBP/CHF Breakout Eyed as Regional Manufacturing PMIs Show I...


GBPCHF_Breakout_Eyed_as_Regional_Manufacturing_PMIs_Show_Improvement_body_x0000_i1030.png, GBP/CHF Breakout Eyed as Regional Manufacturing PMIs Show I...


There are no data on the Swiss Franc economic calendar for Thursday, January 02, 2014.

--- Written by Christopher Vecchio, Currency Analyst

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