CAD/CHF has been rising steadily all year but rangebound over the last few months. Will the pair find support again on a dip to the bottom of the range?
I’ve thrown up a zoomed out picture on CAD/CHF above to show the steady grind higher the pair has been on since March 2014. Unfortunately for the bulls and bears, it’s been sideways action for the pair since September, ranging between .8400 and .8600. Today’s selling on broad risk aversion may be the start of a reversal back to the downside, which I won’t take because of the longer-term grind higher, but I will hop on to a long position if the bottom of the range is retested.
Fundamentally, with exception to Friday’s weak jobs and trade balance data, we’ve seen recent data from Canada surprising to the upside, which I think could continue given the strong trade ties it has with a strengthening U.S. economy. And unfortunately for the Swiss, they are tied to a weakening European economy, which is why the Swiss National Bank is on it’s toes to defend the franc against a weakening euro around the 1.2000 level of EUR/CHF. This could not only put a ceiling on Swiss franc gains, but leave the market dry of bids for the franc for the time being.
Also, we’ve got the Swiss National Bank monetary policy meeting coming up, which could spark a bit of volatility for Swiss francs, but not likely to spark a bullish response from the market with a low inflation outlook. Of course, anything can happen so I’ll be cautious for now.
So, I think the fundamentals favor Loonie over the franc for now, and based on past price action, the bottom of the range could draw in buyers once again. I look to go long there with a wide max stop of one weekly ATR, and my profit target will be the next major psychological area. Here’s what I am doing:
Long full position CAD/CHF at .8400, max stop at .8240, max profit target at .9000
I’m only risking 1.00% of my account on this one, and with this trade structure, I have a potential reward-to-risk ratio of about 2.5:1. If .8400 breaks to the downside convincingly, then I’ll look to close the trade down early. And of course, anything can happen in the forex markets, so if the story changes I’ll be sure to reassess and adjust quickly if necessary. Stay tuned!