The British pound initially fell on Monday to break below the 1.04 level against the Franc, as risk appetite has been damaged early. However, we have turned around quite impressively.
GBP/CHF
The British pound initially fell on Monday to break below the 1.04 level, but we’ve seen a turnaround of a pretty significant magnitude against the Swiss franc as the risk appetite has picked up quite nicely later in the day.
That being said, I also recognize that the 1.04 level is an area that’s been important for a while, so I think it does make a certain amount of sense that we would see this market really react to that. I don't have much interest in trying to get too cute here, but I do recognize that we are getting fairly close, at least to attempting to turn things around and, of course, the Swiss National Bank is highly displeased with the idea of the Swiss franc continuing to strengthen the way it has.
CARRY TRADE AND RISK APPETITE
We’ve seen other risk appetite-based assets turn around completely during the trading session and, therefore, I think it makes a certain amount of sense that money starts to flow away from Switzerland, at least for the time being.
I think the 1.05 level above is the next target for the bulls and if we can break above there, then we will challenge the 50-day EMA, possibly even go looking to the 1.06 level over time.
Keep in mind that the interest rate differential continues to pay you to hold this pair and, therefore, I think it is an interesting place to be. I don’t think it’s easy to trade and hold onto this pair, but I certainly think that we have a situation where traders may continue to try to take advantage of that carry trade which is still at least trying to work. If we can get any type of good news coming out of the Middle East, that will probably send this pair flying.