- The British pound has gone back and forth during the trading session on Wednesday as we continue to test major resistance in the form of the 1.15 CHF level.
- This does make a certain amount of sense, due to the fact that the Swiss National Bank has shown itself to be more dovish than any of the other D10 currencies.
- With that being the case, it is probably only a matter of time before we get this breakout, but in the short term we could see a little bit of volatility.
If we were to break above the 1.15 level, then I think this pair could very easily go to the 1.22 CHF level over the longer term. That doesn’t necessarily mean that we can get there easily, but I think that would be a target. On the other hand, if we break down from here, I think there are plenty of places where you can see support. The first one would be the 1.14 level, followed by the 1.13 level which also features the 50-Day EMA indicator.
Ultimately, this is a market that I think you continue to buy dips and, because of the overall trend and the fact that it has been so relentless. Yes, the longer-term standpoint we had been in a downtrend, but I think the 1.15 level is what determines where we go for the next several months. As far as selling is concerned, I’m not necessarily thinking about doing so until we break down below the 1.1250 level, and of course I would need to see the Swiss franc strengthen in general.
Interest Rate Differential and Swap
Keep in mind that the interest rate differential heavily favors the British pound, and you get paid to hold this pair. Institutional traders are very well aware of that, and that’s exactly what they’ve been doing. If we get another pullback, I have no qualms whatsoever about buying this pair, because over the longer term a positive swap does tend to work out in the Forex world.
This is still one of my favorite pairs to watch, because it could give one of the biggest trades. The Swiss franc and the Japanese yen both are in serious trouble, but the major difference between the Swiss franc and the Japanese yen is that the Swiss National Bank is not panicking about the devaluation of their currency, because quite frankly the Swiss franc is still quite strong from a historical standpoint, whereas the Japanese may be using their currency as toilet paper soon.
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