By: Christopher Lewis
One of the pairs that I get the most questions about is the EUR/CHF pair. Normally, it revolves around the wisdom of buying this pair, as the Swiss National Bank currently has a “floor” in this pair at the 1.20 handle. As a matter of fact, the trend was stopped cold when the SNB actually used the language of “minimum acceptable rate of 1.20 Euros to the Franc.” They also mentioned that they were prepared to buy “unlimited Euros” in order to keep this pair higher. Central banks don’t use language like this – ever.
This shows just how much the Swiss economy is going to suffer by a weak Europe. The Swiss send over 80% of their exports to the EU, and as a result they simply cannot afford to have a Euro that is so weak to the Franc. Many of the traders I have talked to suggest that the Bank of Japan has failed to intervene in the currency markets and make it stick, and this means that the SNB is doomed. One thing they don’t look at is the fact that this market is much smaller than the USD/JPY, and as a result the SNB actually has a fair shot at succeeding.
The floor and ceiling
How you play this pair will vary on your time frame quite frankly. The fact is that this pair cannot be sold, so having said that it is your time frame that will dictate the exit strategy. The pair will eventually rise, but we need to see the European situation get better. To be honest, I am not hopeful at this point, and think it could be a while. For myself, I am only willing to buy this pair at lower levels, and I am taking profits after 30-40 pips. Even using this strategy, you must be patient with this pair as it moves slowly these days in general.
.png "EUR/CHF Daily 3/16/12")
I have been buying this pair every time we dip, but only holding onto the trade for 30 pips or so, and until the economic situation in Europe changes (read bond yields) I will continue to do so and not bother letting the profits run, as I think we bounce around this level for a while.