By: Christopher Lewis
The EUR/CHF pair rose for much of the session on Wednesday as word got out that the talks between the Greeks and the Troika were progressing quite nicely. However, at the end of the daily session, there was no agreement, and the rally fell to form a daily shooting star candle.
The pair is of course one that the Swiss National Bank is presently supporting via a “minimum acceptable rate” of 1.20 Euros to Francs. The announcement of this “floor” sent shockwaves through the Forex world, and pushed the value of the Franc down against almost all currencies as a result. In fact, the market took the news seriously enough to push the EUR/CHF pair up over 1,000 pips in a few short hours.
The market has since failed to retest the area, but it appears that it is on course to try it. The Swiss National Bank will absolutely have to defend this area if it wishes to retain its credibility. A failure to defend the level would be catastrophic as the market would understand it’s been had, and the pair would selloff to the 1.10 level in a flash. Because of this, selling this pair is risky at these low levels.
Approaching the floor
It seems to me that it is only a matter of time before this pair tries the area. The shooting star from the session shows that the Euro isn’t trusted, and that Europeans are moving their money into Switzerland as the crisis in the European Union continues. With this in mind, it almost seems inevitable that the SNB will intervene.
.png "EUR/CHF Daily 2/9/12")
Knowing all of this, the trade is fairly simple in my eyes. I know I want to own this pair, and the shooting star signals to me that I will get a chance to buy this pair at lower levels. For me, there isn’t a specific level to buy at, although 1.20 is optimal, rather a general direction to be heading in my position. The closer to 1.20, the more interested I become in buying this pair. Although I don’t think the trend would change right away, this trade would probably be good to about 1.24 or so.