The EUR/CHF pair broke higher during the course of the back half of January, after the surprise announcement that the Swiss National Bank was trashing the currency peg at 1.20 that it had held in this pair for so long. Ultimately, the market sold this pair off drastically, and won’t be able to trust any rally at this point in time. I believe that is most certainly still the case, even though you can see that we had a significant bounce late in the month.
What I am doing is waiting for rallies that can be sold. I wish to see some type of resistant candle near a large, round, psychologically significant number going forward. The higher, the better it is for me. After all, represent value in the Swiss franc, and as a result allows me to buy it on the cheap.
Downward pressure should continue for some time
The downward pressure in this market should continue for some time, as the Swiss essentially giving up the currency peg tells just how little they believe in the Euro. That tells us that there is a significant amount of pessimism even among central bankers, and that of course isn’t going to help the argument for buying the Euro. I think that this rally that we’ve seen late in the month is simply profit taking, and it’s only a matter of time before the sellers step back in.
I am looking at 1.05, 1.10, and quite frankly any large round number to start selling. If we see a resistant candle near anyone of these levels, I won’t hesitate to sell because obviously the trend is going to be to the downside. The market rally at this point in time is probably hollow at best, and essentially what is known as a “dead cat bounce.” With that, I am bearish but I am going to be very patient and wait for at least a daily candle to set up for a bearish trade.
