- The British pound has rallied rather significantly during the trading session on Monday, bouncing from the 50 day EMA.
- Yet again, the British pound continues to pay you at the end of every day, holding it against the Swiss franc so, I think this is something that's going to continue to be in your arsenal of your portfolio.
- After all, I cannot stress enough how much the carry trade can help you over the longer term, and with the Swiss seemingly willing to stay the with low rates for the foreseeable future, I suspect that sooner or later the Swiss franc ends up being a funding currency.
The 1.13 level underneath continues to be significant support and so does the aforementioned 50 day EMA. On the upside, the 1.15 level above is a significant resistance barrier that you will have to pay close attention to as it is a major ceiling above, and I think one we break above there. It's going to shift the entire longer term outlook for the GBP/CHF pair.
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Pound Should Continue to Rally
It does make sense that the British pound continues to beat up on the Swiss franc over the longer term, due to the fact that the Swiss National Bank cut rates recently. They are the first major central bank to do so, and since then, the Swedish National Bank joined them. But really, at this point, even if the British were to cut interest rates, we still have a huge interest rate differential, and that is something that cannot be overlooked.
It seems as if the carry trade is back in vogue again, and this is just yet another opportunity to do so. Ultimately, if we continue to break higher and we do finally clear the 1.15 level, I'm aiming for at least 1.20, probably much higher than that. This has been a major bottoming process. It's been very noisy as we bang against this ceiling as we have seen over the last couple of months, but this is resiliency that cannot be ignored.
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