Who better to coattail on forex trades than one of the world’s major central banks? No one! That’s why I’m looking to take a position long position with the SNB to defend the franc.
It’s pretty well known that the Swiss National Bank (SNB) has had a limit to how strong the Swiss franc can get against the euro before they feel it would hurt the Swiss export economy. That limit is the 1.2000 handle and it’s quickly approaching, bringing around the question of whether or not they will intervene once again.
What’s different from last time we saw this area on EUR/CHF (during the euro debt crisis between 2011 – 2012) is that there is an upcoming referendum that would require the SNB to increase gold holdings from 8% to 20%, giving them less cash to potentially intervene in EUR/CHF.
With the euro zone not currently in debt crisis and the potential for the SNB to be required to buy some gold, I think the odds are less in favor for a “guarantee” that the 1.2000 area will hold as support. But I think it’s shot worth taking with a small position, especially if the gold reserve referendum does not go through at the end of the month.
So, I’ll be setting long orders for a small position at the levels the SNB stepped in last time. My stop will be a wide one and my max target will be the highs achieved after the 2012 intervention. Here’s what I am doing:
Long full position at 1.2010, max stop at 1.1830, max profit target at 1.2500
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 2.70:1. Of course, anything can happen in the forex markets so if the story with the SNB changes or the 1.2000 doesn’t hold, I’ll be sure to reassess and adjust quickly by closing out or reversing my position if necessary. Stay tuned!