4Xlounge Round Table – The Next USDCHF Move

Posted on Sep 7, 2011 in 4Xlounge Round Table Team

 

The Swiss Central Bank moved its currency last night in a very dramatic fashion. In fact, it was the most volatile forex exchange move since the collapse of the GBPJPY years ago. So what the heck happened? Here is a quote from the Wall Street Journal:

Switzerland’s move to put a ceiling on its exchange rate has raised fears that emerging market governments and others with sought-after currencies will themselves adopt more combative measures to contain foreign exchange gains. Whether this happens via currency market intervention or with more capital controls, the fear is that tit-for-tat devaluation could become a template for policy on a global basis.

In one of the boldest moves by a central bank fighting the recent surge in so-called “safe haven” currencies, the Swiss National Bank Tuesday said it would buy the euro whenever it got down to CHF1.20 against the Swiss franc. – Wall Street Journal

 

Gathering Intell

 

In short, the Swiss Central Bank is “doing” what the BOJ has tried to do for years. If we take the Swiss Central Bank press statements as fact; we can expect more intervention over the coming months. Here is what we “know” and what we can “use”.

  • The global recession is NOT over. In fact, most analysts are betting that the global recession is gathering momentum. If this is true, we can expect a few more years of “global adjustments”. That is the polite spin that Central Banks are putting on our current global economic crisis.
  • The Swiss Central Bank is not afraid to take drastic measures to protect their currency. We should expect more intervention.
  • The one country that really needs to see strength in their local currency is the United States. The USD needs to see a significant rally to drag the US economy out of recession. If we use history as our guide; the last bubble for the US economy should be a currency bubble. Meaning, the USD will form an extended rally against all other currencies. However, we still have the China “wild card” to deal with, so don’t hold your breath.

 

Let’s Make Some Money

 

So how do we use all of this information to help us find a trade? If we take a look at the chart below, the next significant barrier for the USDCHF is the 0.8900 area. That should be our target for any trades on this pair. Do NOT try to short the USDCHF right now. It will probably consolidate a bit, but with intervention looming, it is way too risky.

 

Yesterday’s move was 8 times the normal daily ATR! We can expect similar moves, but probably not as intense. The moves should be in the 3 to 5 times the normal daily ATR range.

 

USDCHF Daily Price Chart

USDCHF Daily Price Chart

 

If we zoom in a bit we see a very clear upward trend line and a couple levels of support. Our entry should be after a strong pullback near the upward trend line. The upward trend is dynamic, so we will have to watch the chart for our price. The current level is about 0.8460ish, but this will change if the pullback takes too long. Our stop on this trade should be below the 0.8280 level. We may see the USDCHF test the 0.8300 level before the next move. It really depends on how fast the Swiss Central Bank responds to the next dip.

 

USDCHF Daily Price Chart Zoomed

USDCHF Daily Price Chart Zoomed

 

The other CHF pairs can be analyzed in a very similar manor. If you need help finding support areas or trend lines, just let us know and we will be happy to answer your questions. The EURCHF has the most volatility and is probably the hardest pair to trade right now. Expect hard consolidations on the GBPCHF and CHFJPY pairs. Our guess is that the USDCHF will provide the cleanest trade.