After nearly six months of sleeping, one of the most volatile currency pairs before the introduction of the floor on 1.20, woke up. The reason for waking was restore the trust that the EU will find a solution to its debt crisis and the diminishing pressure on the SNB to buy euros for Swiss francs. Will this adventure of eurchf last long or we'll come back to 1.2006-1.2011 range?
Thanks to the recovery of the EURUSD?
The debt crisis in Europe that has lasted for 3 years strongly affected by the devaluation of euro, however the actions taken by the EU member states as well as the establishment of the ESM and opportunities through which these funds will be used affected the recovery of the euro against all currencies, among these currencies are found and CHF.
Chart 1. EURCHF daily
Recovery of euro against the dollar in particular contributed to a QE3 which the Fed has done even more pressure on the dollar. Between EUR / USD and EUR / CHF we can find correlation (see point 1,2 and 3 on chart 1 and 2), so when the EUR / USD at a level above 1.3, then the pressure on the floor 1.20 was lower and the EUR / CHF moved in the range 1.2030-1.2150, whereas when the EUR / USD fell below 1.30 on the range of 1.20-1.30, EURCHF was on the 1.2010 and pressured the floor 1.20.
Chart 2. EURUSD daily
What SNB doing?
SNB vowed that they will defend the floor 1.20 and that are the officials of the central bank's repeated countless times through the official statement. Until September, the SNB foreign currency reserves have grown steadily progressive, while in September recorded lower growth and that is immediately meant less pressure on EUR/CHF, market has recognized this and embarked on an adventure of buying euros. But what undoubtedly is that 1.20 acts as a magnet and no matter how many times you go into the market buying adventure on EUR / CHF on the end, however, returned to the edge of the floors.
As a long-time trader this currency pair, my current entries in trade depends on the level of prices. I buying when the EUR/CHF in the range of 1.2010-1.2030, and take profit target at 1.2100 because the officials of the SNB are definitely convinced me that they will defend 1.2000 floor and also I will have relatively small losses, because my stop loss is on 5 or 10 pips below 1.2000 in the case that I am wrong in their persuading. While on the other side of the EURCHF I am sell when market is on the range 1.2130-1.2180 provided that the EURUSD is at a level below 1.3300, the reason is that if the EUR/USD are below 1.3300 pair are still not penetrated very important barrier and that no matter whatever the CHF is still safe haven on the forex market (see also my article CHF from september last year).