The British pound has jumped higher against the Swiss franc, as the interest rate continues to drive buying on dips.
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GBP/CHF Rises as Interest Rate Gap Continues to Support Pound
The British pound has rallied quite significantly against the Swiss franc during trading on Monday, as the 1.05 level continues to be a major floor.
The market will continue to favor the British pound over the longer term, if for no other reason than the massive interest rate differential between the two currencies, and of course the fact that the Swiss National Bank has already made it clear that they will not hesitate to intervene if the market gets a little too positive on the Swiss franc.
With this being the case, I believe we have a market that is going to continue to see a lot of massive swings, but I also believe that we have a situation where traders may be looking at this as a bit of accumulation, perhaps the market is trying to sort out whether or not we can finally get to the upside.
Interest Rate Differentials and Technical Outlook
If we can break above the 200-day EMA, which is just above the 1.0630 level, it's likely that traders will continue to look at this as a market that will probably continue and break much higher, perhaps as high as the 1.08 level.
If we were to break down below the 1.05 level, I would not sell this pair because quite frankly the Swiss National Bank could decide to get involved. Because of this, and the fact that intervention by the Swiss is something that you always have to watch, I think you've got a situation where you can only buy this pair, not sell it, but that doesn't necessarily mean that you buy it at the drop of a hat.
I think ultimately you have to accept the fact that this is a market that will continue to be volatile and choppy but continue to favor the upside as you get paid at the end of every day to hold it. Furthermore, the Bank of England seems like it could very well end up being somewhat hawkish, while the Swiss are beholden and quite frankly digging in their heels to hold rates at 0.
Potential signal: I am buying GBP/CHF above 1.0630, with a stop at 1.0550 and a target of 1.09 above.
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