Double Bottom Forming on the GBP/CHF

Price action on the GBP/CHF has been wild to say the least recently. The trading has certainly been erratic from a pricing perspective, and we believe that this volatility is set to continue. However, over the past few months, if you've been following the 4 Hourly charts, there seems to have been a double bottom pattern forming which is relatively strong.
The first spike low of the double bottom comes in at 1.5365. This is the candle low of a single four hourly bar. Following this bar, the currency pair put in a solid performance and rallied all the way up to 1.6000 – a strong psychological level.
However, since reaching that level last week, the GBP/CHF has sold off once more, to the point where it is now approaching the low once again. Could this be a double bottom forming in action? We believe that given the strengths of both the GBP and the CHF, there is a high likelihood that indeed the currency will once again reverse and head higher.
There are a number of things which are pointing towards this being the likely outcome. Firstly, the %R indicator, which is almost always a reliable oscillator to use on this currency pair – is oversold. This indicates that the currency pair could indeed be in for a correction in the near term. However, whilst this is certainly a convincing factor, it is definitely not the only thing which is leading us to believe that a trend reversal is about to occur.
Over the past 2 years, double bottoms have formed on almost every currency pair out there. They are simply a fact of technical analysis and they are a very reliable measurement of future price action.
However, if you look at double bottoms from a statistical perspective, you will see that if you had been trading the double bottoms which formed on the GBP/CHF currency pair, you would have had the most success. That's right – when it comes to double bottom chart set ups, the GBP/CHF is definitely the most accurate currency pair to base your trades off.
So – where are we targeting for this currency pair trade in the near future? We believe that in the short term, a bounce up to 1.5700 could definitely be on the cards. If this point is reached, we believe that – depending on momentum – the price could return all the way to the 1.600 high that was set last week, and potentially surpass this also.
To curb risk, we have placed a stop loss order below the first spike low at 1.5320 – which should provide enough space to allow for any "false" breakouts to occur, without it affecting our double bottom prediction.

Euro Sovereign Debt is Still Attractive

Earlier this year, if you asked anyone whether or not they would actively and happily hold on to Eurozone sovereign debt for the long run, the answer would probably have been a laugh and a strong "no". Having just been through a moderate sovereign debt crisis in countries such as Greece and Spain (and these issues are of course continuing) – it would be fairly naïve to predict that people would be overly happy to hold Euro sovereign debt for the long term – right?
Wrong. Apparently, Eurozone debt is just as attractive as it has ever been, only that now investors are being hugely rewarded for holding it. Credit default swap spreads have widened over the past few months to levels similar to those when the debt crises started for these countries, but there is a significant difference this time around.
The difference is that investors do not fear a default by any of the countries involved! In fact, a recent survey of investors found that sovereign debt trading is actually more reliable than currency trading in the current market environment.
This is a big turnaround from January and February of this year. In fact, the turnaround in attitude is almost inconceivable.
So what about the ratings agencies? Don't they have a say in all of this? Yes – of course they do, and their reaction to the whole situation has simply been to downgrade Eurozone sovereign debt over and over again. But investors are slightly cleverer than to simply take the credit rating agencies for their word. They know that whilst a credit rating for an individual country might be bad, the Eurozone is not just comprised of a single country.
Indeed, as we saw in the case of the Greece situation, Germany played a huge – and arguably dutiful – role in rescuing the country. If the Germans hadn't have come to the party, the entire Eurozone would have felt the fallout of the debt crisis.
Therefore, it would appear that whilst the German support for Greece (and Spain) has come and gone, investors believe that the country will still be there to provide financial support for any other Eurozone members who inadvertently fall in to trouble in the coming months. If Greece was able to get a multi-billion EUR bailout, there is absolutely no reason why a similar package couldn't be given to other Eurozone countries.
And therein lays the reason why Eurozone debt is attractive. Whilst not written on paper, Germany has a pact with all member countries that it will not allow them to default. The German insurance policy therefore allows investors to profit from amazing interest rates in some Eurozone member nations, whilst being supported by the main player – Germany – should anything go wrong along the line.

Japanese Yen Waivers on Rumours of Further Intervention

The Japanese Yen was trading significantly lower at the end of last week, as rumours surfaced of further intervention in the USD/JPY currency pair at the end of the week. It was speculated that the Japanese Foreign Ministry was delving in to the currency markets, apparently continuing the intervention that we have seen over the last few weeks.
Whether it is true or not, the rumour itself certainly had a tangible effect on the market, and the Yen was sent lower to close the week approximately unchanged from the open on Monday.
Our belief is that indeed the Foreign Ministry did push a few buttons and attempt to buy the USD throughout the end of the week, albeit in smaller amounts than the past. You will all remember not too many weeks ago when the Japanese central bank came to the party and bought a huge number of USD – which sent the USD/JPY skyrocketing around 300 pips or so.
The same movement seems to have taken place in the EUR/JPY currency pair also. The Yen traded at 112.95 at the end of the week versus the EUR, which was down almost 100 pips from the starting level at the beginning of the week – at 113.75.
Regardless of whether the Japanese Foreign Ministry did intervene or not, it is certainly clear from this recent fall that investors are nervous as to the future of the currency.
The large gains that the Yen has made over the past few months seem to be coming to an end, and the momentum is definitely dying out. However, it is unclear as yet whether or not the definite low has been reached in the USD/JPY pair. As we always say – the market has its own mind, so it wouldn't be at all surprising if having just said that, the market returns to form a new low in the next month or so. If this happens however, it could be rather short lived.
What is clear in this situation however is that the Japanese Foreign Ministry is keeping a close eye on the currency markets, and will no doubt trade more Yen and USD's should the need arise.