Stocks oscillated cautiously yesterday ahead of the anticipated FOMC press conference, which ended up being quite anti-climatic after policymakers announced no changes, and major equity indexes surprisingly dropped in the final hours of trading. Many were preparing for a major sell-off, assuming that the Fed was going to announce plans to scale back on bond-repurchases; much to everyone’s surprise, however, Chairman Bernanke highlighted “diminished” risks surrounding the domestic recovery while affirming the Fed’s plans to taper at some point later in the year through the middle of 2014 [see The Best Dividend ETF For Every Investment Objective].
Our ETF to watch for the day is the CurrencyShares Swiss Franc Trust (FXF, B+), which may experience volatile trading as investors react to the latest interest rate decision and commentary from the Swiss National Bank. While the benchmark rate is expected to remain unchanged at 0%, investors will surely pay close attention to the economic outlook issued after the rate decision itself.
Consider FXF’s one-year daily performance chart below. This currency ETF has been stuck in a dismal range over the past year, sinking down to $100 a share only to rebound sharply and pump the breaks right around the $107 level (red line). FXF has for the most part wavered around its 200-day moving average (yellow line), making it an attractive instrument for directional traders while at the same time leaving many longer-term investors very frustrated. FXF is currently trading underneath a major resistance level, which may open the doors for the bears if the latest commentary from the Swiss Bank fails to ignite optimism; the $107 mark is significant because FXF has been unable to summit this level (red line) on several occasions [see Foreign Currency Risk 101: What Investors Need To Know].
Despite its historical tendency to shy away from the $107 level upon nearing it, we don’t recommend jumping into a short position at current levels because FXF could just as easily charge higher as bargain shoppers eye this ETF right above its 200-day moving average [see 7 Rules ETF Day Traders Must Know].
If the latest economic commentary from the Swiss bank strikes a pessimistic tone in the currency market, FXF could be in for a sour session today; in terms of downside, this ETF has upcoming support at $103 a share. On the flip side, upbeat commentary from policymakers can serve as the much needed fundamental catalyst that propels this ETF passed resistance; in terms of upside, FXF must overcome very stiff selling pressures as it nears the $107 mark. As always, investors of all experience levels are advised to use stop-loss orders and practice disciplined profit-taking techniques.
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Disclosure: No positions at time of writing.