pair to range trade

GBPCHF Range Continues To Show Profit Potential

Prevailing risk aversion has helped pushed the pair lower including a bearish close on the day of suspected intervention. Another down day would make in eight in a row which could open the door for a potential retrace as often occurs following a run of one-way price action.

How stable is the GBP/CHF Range? •Levels to Watch: -Range Top:       1.7125 (Fib, Range, Pivot) -Range Bottom: 1.6300 (Range, Pivot) •The Swiss Franc has regained its footing following the suspected SNB intervention. The lack of success by the central bank in depreciating its currency could lead to further Franc strength. Meanwhile, sterling continues to see pressure from lower interest rate expectations and broader risk aversion, increasing the downside risks for the pair. •The 50.0% Fibo of 1.8121-1.6129 continues to serve as formidable resistance and the recent failure at the level has kept the current range intact. Support comes at 1.6300-the last swing low, and an area we have seen congestion at in the past. Short-term support is being found at the 100-Day SMA at 1.6692 which becomes a target level. Suggested Strategy •Short: Place an entry at 1.6650 to ensure a break below the 100-Day SMA at 1.6692 •Stop: Set the stop to 1.6750 which would put us above trend line resistance and the MA. To secure profit, move the stop on the second lot to breakeven when the first target hits. •Target: The first target is 1.6500- one and half times risk. Followed by 1.6314-1/11 low.

Trading Tip – Prevailing risk aversion has helped pushed the pair lower including a bearish close on the day of suspected intervention. Another down day would make in eight in a row which could open the door for a potential retrace as often occurs following a run of one-way price action. That is why we are waiting for a break below the 100-day SMA to confirm a continuance of the bearish trend before taking a short position. Budget troubles in Europe are a looming factor and although we saw tough talk from European finance ministers at the G-7 calm some fears, the existing risks should continue to pressure high yielding assets. Although the U.K. has a 0.50% benchmark rate and yield expectations continue to diminish (which is also weighing on sterling) it has maintained a moderate correlation with risk trends and tends to trade lower on broad based risk aversion. Conversely, the Swiss Franc has started to regain its form as a funding (safe haven) currency which is leading to a diminishing relationship with risk. However, the Franc continues to trade in lock step with the Euro against the dollar and yen the reigning flight to safety targets.  Despite, the SNB’s perceived failed attempt to depreciate the Franc the possibility remains that the central bank will make another foray into the currency market. Its main target is the Euro but the GBP/CHF will feel the effects of any intervention in the subsequent cross rate action. Additionally, the U.K. is also a major purchaser of Swiss goods and could become a target in its own right. Therefore, tight stops are recommended once target levels are met as additional appreciation will draw attention form policy makers

Event Risk for the Europe and Switzerland

U.K. – The main event risk on the week for sterling is the BoE’s quarterly inflation report. Consumer prices are already above the central bank’s target and at 2.9% threatening their 3.0% threshold. The MPC expect that price growth will slow based on the existing slack in the economy which could put more focus on the upcoming NIESR GDP estimate. If the outlook for growth is sharply higher then we could see a bounce in yield expectations which would provide sterling support. Conversely, a stagnating British economy would make it prohibitive for policy makers to begin tightening despite price pressures. The trade balance and industrial production reports will give insights to the current pace of activity and demand from abroad which are crucial factors for a continued recovery.

Switzerland – Swiss fundamentals typically have little influence on the pair’s price action which could be reduced further with the threat of intervention. Today saw strong retail sales and a drop in unemployment have very little impact on price action. The focus for traders going forward will be the Consumer Price Report as deflationary concerns are a reason for policy makers desire to limit the Franc’s appreciation.

 

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