- The Swiss franc initially pulled back just a bit during the trading session on Wednesday, but then turned around to show signs of life.
- The ¥172.75 level is an area that we have seen interest at previously, in the form of resistance. Keep in mind that we are close to the top of the candlestick where the Bank of Japan intervened, and therefore it does make a certain amount of sense that we continue to go higher.
On the other side of the equation, we have the Swiss National Bank, which has cut rates, but at the end of the day, the interest rate is still higher in Switzerland than it is in Japan, I think that continues to be the case. Even if the Swiss were to cut again, it would still favor the Swiss franc over the longer term as far as swap is concerned. I’ve been hanging onto short Japanese yen positions in multiple currencies including this one and will continue to do so.
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Technical Analysis
The technical analysis is of course bullish, as it is against almost anything denominated in Japanese yen. Ultimately, I think this is a market that will try to go to the ¥175 level above, which is the top of the massive intervention candle that happened several weeks ago. If we can break above there, then it becomes more or less a “buy-and-hold” type of trade. However, that’s not exactly what I find the most interesting about the price chart, rather what it can tell you about the rest of the Forex world if you pay close attention.
Both are funding currencies
Both of these currencies are low yielding currencies, and therefore they are funding currencies. What I mean by this is that a lot of carry traders are short of both the Swiss franc and the Japanese yen, against other currencies that offer more. With that being the case, they get paid at the end of every day. Furthermore, you can take loans from one country and invest in the other, which is obviously something that’s more of an institutional trade. As long as the Swiss franc continues to gain strength against the Japanese yen, then it’s a simple matter of shorting the yen against anything that offers a reasonable return as far as interest is concerned.
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