By John Galt
August 15 2011 – 07:00 ET
I noticed once again the big hoopla with the rumor the Swiss National Bank may or may not have started regarding the pegging to the Euro and the “sudden” price move in the USD/CHF cross. A quick look at the charts should give even the most casual observer the obvious observation that a 20% correction is more than warranted regardless of the rumor and 30% would not be a surprise. At this point in time, 70.70 is the low which was hit during the peak of the turmoil and a 20% move would return the rate to around 85; not really that unheard of no matter the SNB rumors or otherwise. Thus while there will be some consternation within the investment community, the move is a perfectly normal technical reaction to what is an oversold condition of the dollar and Euro versus the Swiss Franc.
At 85, expect strong resistance and considering the coming events at the midpoint to end of September in the U.S. political and financial arena, I would expect a retest of the 70.70 low if not a break slightly below that.
The same situation exists with the Euro versus the Franc as this chart demonstrates but with even more room to run:
The Swissie should easily run up to the 1.20 level from the parity low equaling a 20% retracement and the secondary line above that at 1.25, or 25% move, will prove to be a solid resistance point in the move. So while some people get excited about the “return to normalcy” of the exchange rates versus the Swiss Franc, this is nothing more than a technical move which will retest the recent lows soon enough.