EUR/CHF Buy Setup From Unofficial Floor

There has been speculation that the Swiss National Bank is protecting the 1.0800 handle in EUR/CHF. The pair reached a low of 1.0796 today and was seen consolidating near the 1.0800 handle shortly after the European close.

The SNB made it public that they had intervened in the currency markets when the EU referendum triggered demand for safe haven assets, sending EUR/CHF sharply lower. A notable spike can be seen on a daily chart for the June 24 print, and a clear range has developed since then.

Following the initial intervention, dips towards the 1.0800 handle have been bought on several occasions. The chart indicates a move from the level in early July, early August and at the end of September.

The intervention was the first major move from the central back following the black swan event of January 2015. The SNB’s abrupt termination of a floor at 1.20 in EUR/CHF caused a drastic and volatile collapse in the exchange rate. The risk in the current trade setup is not the same, as an official floor has not been set.

Since the EU referendum, SNB Chairman Thomas Jordan has been vocal about wanting the value of the Swiss Franc lower and has on several occasions indicated that the central bank was willing to take further action if required. Recent comments from the Chairman indicated that the SNB has not reached their lower bound for interest rates and that they are willing to take rate into further negative territory.

Jordan delivered a speech about monetary policy and negative interest rates at the University of Basel today and stated that negative interest rates are having the desired effect. He further commented that the demand for cash had not risen substantially, proving that the lower bound had not been reached.

Support in EUR/CHF is seen at 1.0760 as the level held the pair higher on three occasions in the third quarter of 2015. The level also carries confluence with a 61.8% Fibonacci retracement measured from the spike low posted during the UK vote to the early September high. The stop loss for the trade setup has been set slightly below the level.

Resistance is seen at 1.0976, the level held the pair lower in early September and early October and acted as support in February. The take profit has been set slightly ahead of the level.

With the pair currently hovering around the 1.0800 handle, the entry will be at market.

Trade Parameters

Entry: At market
Stop: 1.0749
Target: 1.0975
Risk to Reward: 1:4
Time Frame: Three weeks

EUR/CHF Daily Chart

EURCHF Daily Oct 24

Jignesh is an analyst and trader, specializing in currencies and commodities. He utilizes a macro view as well as a proprietary method of pattern recognition that is based on the principles of Elliott wave. His focus is to assess strength in trends, and perceiving high potential turning points in the markets. He brings over 4 years of experience in his current role.