I’ll go through my thesis behind my EUR/CHF trade that’s on at the moment. I see this trade as a low risk but very high reward if it goes my way.
You see CHF is traditionally known as a “safe haven currency” and it seems like it’s “the” safe haven to be in at the moment. Now the Swiss national bank (SNB) believe that the Swiss franc is valued too highly, so they’re always attempting to lower the value of it but find it difficult as essentially, they’re manipulating their currency which Mr Trump does not like at all.
From my viewpoint I think the market actually knows it’s worth a lot more than it currently is, especially compared to the Euro.
The main way the SNB try to reduce the value of the Franc against other currencies is by selling the franc and buying up other currencies, creating an artificial demand.
If you check out this bar chart, you can see how much other currencies the SNB has been buying up recently. According to this, quite a lot…
That number on the chart is 800 billion by the way.
I’m thinking this foreign currency accumulation will eventually stop before they reach the threshold of market manipulation and will have to let market forces take effect.
As you can see on the monthly timeframe this has been trending one way for the last two years, clearly falling on the MACD too and I cant see a good reason for this to just turn around now. Unless maybe Switzerland decides to become a rogue nuclear state over the next few months?
It does look like a pretty big bad support zone on the daily there, and the general opinion is that the SNB has been defending the 105 level, but I think once we start falling through that, there’s only one way we keep going as Paul Johnson says in his cracking garage tune “down, down, down”.
One other factor that is nice to see is retail traders are 74% long, and who is wrong 80% of the time? Retail traders. So being on the opposite side of them can’t be a bad thing either right?
Now if we take a look at the counter party of the EUR, I see the slight opposite of a safe haven at this current moment. The Eurozone seems to be getting more and more fragmented and therefore more and more unstable which should naturally lower its value also weakening it against the dollar.
Without going into anymore charts and graphs, the eurozone was already forecasted to be slowing this year even without the Coronavirus outbreak, which has wreaked havoc within European economies.
Anyway, lets see what happens…