Potential signal:
- This is a pair that I’ve been talking about for a while, and unfortunately most people sleep on it.
- You can still get long of this market, but you have to recognize that your stop loss has to be just below the 0.88 level.
- I still believe this market is going to the 0.91 level at least.
During my daily analysis of the major currency pairs around the world, the USD/CHF pair is one that got really interesting all of a sudden. This is because the Swiss National Bank has decided to cut interest rates by 50 basis points, instead of the expected 25. This tells me that the Swiss are decidedly concerned about growth and let us not mince words here: if there is any central bank in the world that is about to go negative, there are only 2 that come to mind, and Switzerland is one of them. (Japan being the other.)
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I believe that the Swiss are likely to go negative before this is all said and done, and therefore it will make the Swiss franc a funding currency. Central bankers only understand a few ways of doing business, and the idea of the carry trade is something that is firmly ensconced because the Swiss unfortunately are stuck with the European Union as a landing spot for about 85% of their exports. With that in mind, it’s difficult to imagine that they want the Swiss franc to be extraordinarily strong, especially as the Euro is crumbling.
That being said, the technical analysis is very strong anyway, as we are looking at the 50 Day EMA getting ready to break above the 200 Day EMA. The 0.8950 level above is a significant resistance barrier and breaking above that allows for the market to go looking toward the 0.91 level, possibly even the 0.9150 level over the next several weeks. Short-term pullbacks will almost certainly be supported not only at the moving averages, but perhaps near the 0.88 level underneath as well.
I do not have any interest in shorting this pair, and I do recognize that the Federal Reserve is likely to cut interest rates by 25 basis points next week. However, that’s already known, and you can see how the market is behaving. We are seeing the Swiss franc get pummeled by most currencies as you would expect, as the Swiss National Bank has shocked people.
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