- When it comes the funding currencies in the Forex world, the 2 biggest ones are by far the Swiss franc and the Japanese yen.
- All things being equal, this is a market that I think continues to see a lot of noise, as both of these currencies are fairly week.
- However, this is a brilliant currency pair to pay close attention to even if you are trading it, because it extrapolates out into so many other trades.
Funding Currencies
When we speak about funding currencies, what we are talking about is pairs that you short in order to take advantage of higher interest rates in other countries. For example, you might buy the US dollar against the Swiss franc, because it pays you to hang on to the currency pair at the end of every day. Ultimately, the Swiss franc in the Japanese yen are two of the lowest yielding currencies out there, and of course it’s worth noting that the Swiss National Bank recently cut rates, so that of course means that the Swiss franc is extraordinarily week. However, the Bank of Japan finds itself in a situation where we cannot expect major rate hikes, so therefore it’s a situation where the Japanese yen is even weaker than the Swiss franc. Furthermore, you get paid to hang onto Swiss francs against Japanese yen, so there is a positive carry to the upside, albeit small.
Technical Analysis
The technical analysis for the market suggests that we are eventually going to continue to rally, because we initially pulled back a bit during the trading session on Wednesday, only to turn around and bounce from just above the 50-Day EMA. Keep in mind that this pair has multiple resistance barriers above, and it is not necessarily a pair that tends to move very quickly.
Keep in mind the Friday features a Bank of Japan interest rate decision, press conference, and statement. This could throw some volatility in this pair, but at this point I like using this pair to determine how to trade the Japanese yen or the Swiss franc around the world. For example, if the Swiss franc continues to Rally against the Japanese yen, that I recognize that the Japanese yen is the weaker of the 2, and therefore I will do something like by the British pound against the Japanese yen as I should get more “bang for my buck.” As things stand right now, I think this pair probably goes looking to the ¥171 level.
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