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Swiss Franc Deja Vu
Written by: PaxForex analytics dept - Tuesday, 17 April 2018 0 comments
Let’s backtrack a bit into forex history, not to long ago, the Swiss National Bank (SNB) had their currency pegged to the Euro with an exchange rate of 1.2000 in the EURCHF as a boundary. The SNB vowed to defend this level at all costs and interfere in the forex market with its vast currency reserves in order to prevent the exchange rate from dropping below the 1.2000 level. This became one of the most defended and openly communicated levels in financial history. Each time the EURCHF exchange rate approached 1.2000, the SNB stepped in pushed price action higher.
It became so defended that buying the EURCHF near 1.2000 was a guaranteed profitable forex trade, until it wasn’t. Early in 2015, SNB President Thomas Jordan all but promised forex traders and the financial community in general that the Swiss central bank would keep its Swiss Franc pegged to the Euro. A few days later, the biggest shock in forex this decade was announced and the SNB back-tracked on their approach and de-pegged the Swiss Franc.
The aftermath of the announcement was horrific and the EURCHF plunged to an intra-day low of 0.7564. Forex accounts were wiped clean and dozens of brokers went bankrupt or required bailouts in order to remain operational. Negative balance protection shielded many traders from owing their forex brokers money. The SNB was known for market interventions, but a free float of the Swiss Franc surprised everyone. The Swiss central bank was surprised as well with the new-found strength of the Swiss currency and was forced to cut interest rates into negative territory.
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Over three years later, the EURCHF is approaching the 1.2000 level once again. This time around it is from the other side and the mark represents more of a psychological level or a reminder of recent history. The SNB is likely to welcome the weakening of the Swiss Franc which will allow it to focus on normalizing interest rates. Total Sight Deposits, reported weekly, have barely moved in 2018 which is a sign that the SNB remained largely on the sidelines. With less than 100 pips away from the once defended line in the sand, how will forex traders as well as the SNB react once EURCHF bulls run all over it? Here are three forex trades to profit from the expected volatility.
While this currency pair is marching towards the once guarded 1.2000 mark, forex traders should expect heavy resistance near current levels. The EURCHF is trading inside of a newly formed horizontal resistance area with very
limited upside potential. A price action reversal should be accounted for and forex traders are recommended to stagger their short entries inside of its horizontal resistance area. Profit taking is expected between current levels and the 1.2000 mark.
The CCI is trading in extreme overbought territory above 100 and has formed a negative divergence which is a bearish trading signal. A breakdown below 100 is likely to trigger more selling in the EURCHF. Deposit into your PaxForex Trading Account today in order to enter this trade before the contraction will materialize.
This currency pair is putting two safe haven currencies against one another as price action is trading inside of its horizontal support area. As the Swiss Franc is expected to attract more buy orders, it will push the CHFJPY to the upside. A clear breakout above its horizontal support area will result in a short-covering rally which will further provide upside momentum. Forex traders are advised to spread their buy orders inside the horizontal support area.
The CCI briefly spiked into extreme overbought conditions above 100, but has quickly recovered and is now trading around the 0 mark. As the CHFJPY is set for an advance this technical indicator is expected to recover as well. Earn over 500 pips per month with the PaxForex Daily Fundamental Analysis where our expert analysts highlight the trading day’s most important fundamental facts.
As volatility in across asset classes increases, many traders prefer to hedge their portfolios with precious metals. Gold is the go-to commodity for this hedge, but currently Silver carries more upside potential with less downside risk. Price action already completed a breakout above its horizontal support area and is now trading near its descending resistance level. Traders should place their buy orders just below this level in order to be positioned for a breakout.
The CCI is trading in and out of extreme overbought conditions at the 100 level, but this momentum indicator has more upside which will follow price action in Silver higher. Follow the PaxForex Daily Forex Technical Analysis in order to receive the most profitable technical trading set-ups each day by our expert analysts.