By: Christopher Lewis
The EUR/CHF pair is one that is a bit different than the others because of direct central bank intervention. The Swiss National Bank has put in a “minimum acceptable rate” for the pair at 1.20, and at that announcement, the pair skyrocketed in a few short hours, gaining well over 1,000 pips. The 1.20 level hasn’t seriously been tested since then and continues to be a mark that not only myself, but the entire trading community watches.
There are some in the media that suggest that all central bank interventions ultimately fail, and the Swiss can only keep this pair up for so long. However, the level is one that hasn’t even been touched yet, and this market is a bit smaller than many others. The Swiss also have gone out of their way to explain that they are willing to buy “unlimited Euros” in order to defend this level. There is a real chance that they mean it.
The Swiss economy sends over 80% of its exports to the European Union, and the problems in the EU will certainly have a drastic effect on the domestic GDP as a result. The Swiss really are in a pickle at the moment as the Euro is in real danger of falling apart, and they have a stated level to defend. If they were to not defend it, the market would find the 1.10 level overnight.
There will be intervention
Because of this, I am willing to bet that intervention is a guaranteed thing. With this in mind, I am willing to buy this pair close to the 1.20 level, and quite frankly – I have no technical criteria beyond proximity.
As for those that say it won’t work – I will let them go against the SNB, as suddenly finding myself down 300 pips is not the way I want to be betting against the nerve of a central bank. The pair has massive resistance at the 1.24 to 1.25 area, so I am expecting a nice pop, but this isn’t a long-term trade to the upside. For that to happen, Europe would have to get their collective act together – something that I don’t see happening for a while.