The British pound has rallied a touch against the Franc again on Monday, as the overall recovery continues in favor of the carry trade.
GBP/CHF
The British pound has rallied a bit during the early part of the trading session against the Swiss franc on Monday, but as you can see, the market has shown itself to be very respectful of the 1.0950 level. The interest rate differential favors the British pound over the Swiss franc quite significantly, and therefore, this becomes a nice carry trade type of pair. In fact, when the carry trade's in vogue, like it is now, this is one of my favorite pairs to trade.
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We got absolutely crushed last Wednesday as the Treasury Department in the United States announced that they were going to double the buyback of 30-year bonds, and I think everybody went a little bit crazy with that idea of financial weakness or that we were entering quantitative easing, because quite frankly, the 30-year bond was at $2 billion in buybacks a month, and it was doubled to $4 billion, but every other issuance is $4 billion a month. At the end of the day, it was just stabilizing across the board. Obviously, there's probably more to it than that, but it wasn't the apocalypse that everybody had priced in. And now we're seeing the Swiss franc give back some of that safety bid, which makes sense. It really shouldn't have got it in the first place.
50-Day EMA Support and Upside Targets
The 50-day EMA offered significant support, and now I'll be watching the 1.0950 level followed by the 1.10 level, but I'm already long of this market, have been for a while. And now really, I've got no issues adding to my position. Granted, it's a swing position. I've been here for a couple of months now.
I have no interest in shorting the British pound, although the rate hike expectations have come down a little bit for the United Kingdom. The reality is the differential is still wide enough to drive a truck through. You get paid at the end of every day to hold this to the upside.
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