Since the January 2015 crash, the price price of EUR/CHF has hit a high of 1.1197 but has steadily declined since then and fell to a low of 1.0621. Since hitting that low, price has meandered in a tight trading range but is relentlessly heading down to back to this critical level and it is known that the SNB has been busy defending its currency.
The problem the S.N.B. have is that the Swiss France is a safe haven currency. When there is uncertainty in the market there is a flight to those currencies considered “safe”. Switzerland is a neutral country with huge reserves and solid a solid banking structure. Its economy is stable. With stock markets ready to fall and uncertainty surrounding the European Union with Brexit and the possibility of a Le Pen victory in France, investors are less interested in yield and more interested in safety.
Even with intervention and negative interests rates (effectively charging you to park your money) , the Swiss Franc is attractive and if this is the case even when equities are pushing higher what is going to happen if we see what looks an almost inevitable decline in stocks sometime this year?
Its more than likely that we'll see a demand for the Swissy that the S.N.B. cannot defend and we could well see a large appreciation in the CHF and a subsequent large decline in cross CHF pairs with the EURO looking particularly vulnerable.
So how do we use this information?
The likelihood of a sustained EUR rally against the CHF looks out of the question. There just isn't a scenario out there currently that could drive it.
Short of the ECB announcing a surprise interest rate hike which isn't feasible this year the EUR is headed in one direction only against the CHF.
Should Marine Le Pen even perform well in the up and coming French Election, let alone win it, the markets will be rocked and the EUR will come under enormous pressure.
Selling the EUR against the CHF at current levels (1.0680) with a stop at 1.0735 (55 pip risk) could be an interesting trade.
The problem the S.N.B. have is that the Swiss France is a safe haven currency. When there is uncertainty in the market there is a flight to those currencies considered “safe”. Switzerland is a neutral country with huge reserves and solid a solid banking structure. Its economy is stable. With stock markets ready to fall and uncertainty surrounding the European Union with Brexit and the possibility of a Le Pen victory in France, investors are less interested in yield and more interested in safety.
Even with intervention and negative interests rates (effectively charging you to park your money) , the Swiss Franc is attractive and if this is the case even when equities are pushing higher what is going to happen if we see what looks an almost inevitable decline in stocks sometime this year?
Its more than likely that we'll see a demand for the Swissy that the S.N.B. cannot defend and we could well see a large appreciation in the CHF and a subsequent large decline in cross CHF pairs with the EURO looking particularly vulnerable.
So how do we use this information?
The likelihood of a sustained EUR rally against the CHF looks out of the question. There just isn't a scenario out there currently that could drive it.
Short of the ECB announcing a surprise interest rate hike which isn't feasible this year the EUR is headed in one direction only against the CHF.
Should Marine Le Pen even perform well in the up and coming French Election, let alone win it, the markets will be rocked and the EUR will come under enormous pressure.
Selling the EUR against the CHF at current levels (1.0680) with a stop at 1.0735 (55 pip risk) could be an interesting trade.
