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GBP/CHF Finds Channel Support, Awaits SNB Intervention

A dovish outlook from the SNB sent the Franc tumbling as it raised the prospect of intervention. The statements took on added weight following the BoJ’s recent efforts to de-value the yen, as both central banks’ face similar issues. Concerns over future growth have fueled support for the safe haven currencies. The Franc has appreciated to a level which is threatening demand for exports and importing deflation- a major threat to growth. Further appreciation can’t be ruled out, especially if a broader flight to safety occurs. Additionally, there are risks that the BoE could add to their stimulus efforts which may be a weighing factor for the GBP/CHF, leading to a resumption of the bearish trend. Sticky inflation in the U.K. and signs that growth is sustaining makes a case for a MPC rate hike, supporting our set-up. However, SNB intervention is the greatest case for a bullish position, which makes it a risk proposition with equal potential reward.

Levels to Watch:

-Range Top: 1.6600 (Trend, Pivot)

-Range Bottom: 1.5400 (Trend, Pivot)

GBPCHF_Finds_Channel_Support_Awaits_SNB_Intervention_body_Picture_7.png, GBP/CHF Finds Channel Support, Awaits SNB Intervention

Charts created using Strategy Trader– Prepared by John Rivera

Suggested Strategy

  • Long: Place an entry at 1.5900
  • Stop: Set the stop to 0.1.5800-100 pips in risk
  • Target: The first target is 1.6163-8/23 high

Trading Tip – The dovish SNB comments beat us to the punch, as we were looking to get long with the test of the lower channel bound. However, given the broad formation profit potential remains, which is why we are looking for a break above former range support at 1.5900. We will remain cautious as a retracement of the post SMNB gains is highly probable. If that is the case we will look for another test of channel support for a bullish position. The 50-Day SMA at 1.6077 could offer resistance and a level to consider taking partial profits. Given that downside risks may be limited given the Franc recent run we may stay in the position longer than others as we hold on for possible intervention, as we did with a CAD/JPY position ahead of the BoJ action.

Event Risk for Switzerland and U.K.

Switzerland – The trade balance report could potentially be a market moving release if it shows a significant drop in exports. Policy makers will be hard pressed to sit idly by as demand for Swiss goods falters. Economic forecasts from the SECO and KOF will also shape expectations for central bank action and could influence direction.

U.K. – The BoE minutes could present significant event risk if the vote tally reveals a shift toward tightening, or additional stimulus. If members other than Andrew Sentance called for a rate then we could see sterling support. Conversely, votes for additional QE could sink the pound, similar the dollar weakness that followed rumors of Fed action. The mortgage approvals numbers could lead traders to hedge against the minutes, especially if we see credit conditions tighten. Budget deficit figures will also peak interest, as growing public borrowing will create the need for harsher austerity measures limiting the potential for future growth.

Data for September 19– September 23

Data for September 19– September 23

Date

Swiss Economic Data

Date

U.K. Economic Data

Sep 21

SECO September Forecasts (SEP)

Sep 19

CBI Trends Total Orders (SEP)

Sep 21

Trade Balance (AUG)

Sep 20

Major Banks Mortgage Approvals (AUG)

Sep 23

KOF September Forecast

Sep 21

Public Sector Net Borrowing (AUG)

Sep 22

BoE Minutes (SEP)