Trade Of The Week: Trading The SNB’s Defensive Stance

Buy USDCHF 

Heading into the final weeks of the year, battle-lines are drawn across FX markets with investor expectations geared towards a rate hike by the Fed and further easing to be introduced by the ECB. This stark policy divergence which drives the US Dollar higher and weighs on the Euro is also weighing heavily on the Swiss Franc. The SNB, who determinedly endeavour to halt the appreciation of the Franc, were forced to abandon their currency peg against the Euro in January of this year as the ECB unleashed its huge quantitative easing program. In the face of yet further ECB easing, there is speculation that the SNB have intervened to orchestrate the CHF weakness we are currently seeing though nothing has been confirmed. What has been confirmed, as ever, is the SNB’s preparedness to take steps to weaken CHF, reiterated again last week in comments by SNB chair Jordan where he warned investors to steer clear of the “significantly overvalued” CHF. Speculation is mounting regarding further SNB actions in the wake of yet another round of easing by the ECB with expectations for yet further reduction of negative Swiss rates moving to the forefront.

The US Dollar however continues to remain strong heading into the December FOMC with markets now pricing a 78% probability in favour of a hike. Recent data has been strong enough to keep USD on an even keel and heading into the November NFP’s  on Friday, USD bulls will be looking for another win on the back of last month’s bumper NFP print. Retail markets are as much as 85% short USDCHF signalling clear room for further upside in this pair.

Trade Idea

  • USDCHF has managed to completely reclaim the 2369 pips lost from the initial 2015 highs as rate now traded back above levels last seen prior to the SNB removing their currency peg. The break back above the 1.0230/40 level now creates clear support in the market for a continuation higher in line with bullish Order Flow and bullish VWAP.
  • Monitor price action retest of this zone for a long trade with stops below last support targeting a move back into 1.10 resistance.
  •  If price runs deeper through this level monitor lower support levels (1.01 & 0.98/99) for price action & Order Flow signals looking to trade a resumption of the bullish trend.

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