EURCHF forms double bottom

The disappointing data continues for both the Euro-Zone and Switzerland but a technical pattern seems to have taken over the chart. A double bottom pattern could signal a breakout of the bearish trend.

Further disappointing data overnight saw the Euro take a hit as the manufacturing PMI in Germany fell to 49.9, below the magical 50 mark which splits expansion from contraction. The French manufacturing PMI is firmly planted below 50 at 48.8 and EU wide manufacturing has fallen to just above 50 at 50.3. We could see the ECB forced into more stimulus action in the near future.

The reason we haven’t seen a serious test of the price floor at 1.2000 is that the Swiss SVME PMI has also fallen to 50.4 from 52.9. Also the SNB has recently begun to talk about negative interest rates which has halted the strengthening of the Franc against the Euro. The SNB has said on numerous occasions that they will defend the price floor by buying foreign reserves in “unlimited quantities” as a way to combat deflation.

Technical patterns seem to be taking over as there is little differential between the issues facing the two economies. At this stage the overriding pattern is the bearish trend line, but the formation of a potential double bottom could see a serious test of the trend line.

I wouldn’t be surprised if we saw a breakout that pulls back to use the trend line as support, then a bounce off it and the formation of an uptrend. In this case look for resistance at 1.2139, 1.2235 and 1.2374 to act potential exit points for a long trade. If risk is managed properly, a stop loss could be set below the 1.2000 price floor, meaning that this trade will only get stopped out if something catastrophic happens for the SNB to abandon it.

The EURCHF chart is a fascinating one and the pressures on the respective central banks only adds to the interest. Look for technicals to play a part given that the respective economies are heading in the same direction. A double bottom could signal a breakout of the trend line.