Traders are once again adding euro/Swiss (EUR/CHF) to their quote boards.
Price action is no longer boring and kept close to the 1.20 peg which was set by the Swiss National Bank. Today, the euro made a new 13-month high at 1.24112 francs as bullish momentum continues.
Breaking the Swiss bank was something that several hedge funds were targeting last year. Multiple times investors placed massive bets that peg would not hold. However, the fears of a euro zone collapse are receding and traders are abandoning the flight to safety trade.
The optimism out of Asia will potentially help support the stronger euro. Japan last week announced that they will use foreign assets to purchase European bonds. This could be supportive for the euro, but not necessarily weaker for the yen as the reserves are already foreign. Chinese imports are surging higher and that is also supportive for the euro.
This confluence of a technical breakout and various optimism for the euro, especially that expectations are for the euro zone to exit its recession in the second half of the year could help drive price to the 1.2650 level, which is the 38.2% retracement of the 2007 high, 1.6827 and the 2011 low, 1.0068.
The steep ascent over the last week of trading could however warrant a pullback towards the 1.2340 before seeing a resumption of the bullish trend. Any major headwinds from the Italian elections or weaker statistics from Germany may derail this move higher.