- The British pound initially pulled back just a bit during the trading session on Tuesday, only to turn around and show signs of life again.
- Ultimately, this is a market that has been very bullish for a while, and with plenty of reasons.
- Inflation in the United Kingdom continues to be a bit of an issue, while inflation seems to be somewhat under control in Switzerland.
Central Banks
The Swiss National Bank has recently cut rates, setting the Swiss franc on a downward trajectory against most currencies, the British pound included. As the British Pound continues to rise against the Swiss franc, we are starting to threaten a crucial level in the form of the 1.15 CHF level, an area that’s been important multiple times. I think at this point in time you are looking at short-term pullbacks as buying opportunities for a market that is most certainly strong.
I have no interest in shorting this market, because quite frankly it has been far too strong and any correction at this point in time will almost certainly attract a lot of attention. The 50-Day EMA is all the way down at the 1.1250 level, so you need to be paying close attention to that as a potential “floor in the market.”
While I don’t necessarily advocate chasing this market, nor do I advocate a huge position, I do recognize that there’s only one way to trade this market as we continue to see plenty of upward momentum. If we can break above the 1.15 level, then I think we could have a bit of a “foldout trade” come into the picture. This will be especially true if the Swiss continue to be dovish, and I think it’s probably only a matter of time before this happens. But frankly, the Swiss franc is becoming a funding currency for the carry trade again, although it is still playing second fiddle to the Japanese yen, that may be changing given enough time. Either way, I do not want to own the Swiss franc in this environment, at least not unless something drastic happens from a massive “risk off” perspective.
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