Potential signal
I am buying a small position here.
I would have a stop below the 0.78 level, with a target of 0.79 above.
The US dollar fell pretty significantly against the Swiss franc to kick off the trading week as the world is starting to pay close attention to the idea that the situation in the Middle East might get a little bit better.
All things being equal, the 0.78 level is an area where I think a lot of people will have a potential floor and I would take a look at this chart and react to the bounce that has happened later in the day as it suggests there is going to be some resiliency.
Some of the noise that we've been hearing is that maybe there could be an agreement, but maybe there won't be and that will keep the market in a bit of a choppy and confusing area. If we can break above the 50-day EMA, then it opens up the possibility of a move to the 0.79 level. Above there opens up the possibility of moving to the 200-day EMA.
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The Carry Trade is Still Very Much Alive
Ultimately, I do not want to short this pair, the interest rate differential will continue to favor the US dollar and therefore I think this might be a decent entry.
We'll just have to wait and see because Monday of course was Memorial Day and a holiday throughout most of Western Europe so volatility and volume would have been things to think about in this environment.
The question of course will be whether or not people choose to run towards the Swiss franc or run towards the higher yielding US dollar. I think the carry trade is still very much alive and this looks like an opportunity for me to take advantage of the interest rate differential and get involved.
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