Going against the current sentiment, but with the longer-term price trend on GBP/CHF as I think it might be time to take a nibble for a long position.
Fundamentally, the British Pound has been beaten down since mid-July as forex traders began to price in weakening economic data and the idea that a rate hike will come later rather than sooner. I’m actually in that camp, but I also think that even without a rate hike, the U.K. is still one of the leaders of the pack in terms of recovery from the financial crisis, a center of global financial liquidity and safety, and carries an interest rate above most of its peers. For me, it’s still attractive to go long after the rate hike delay speculation dies down.
We won’t know until after the fact, but I think we may be near that point with the a couple of Bank of England policy members actually voting for a rate hike, as well as technically on some of the Pound pairs.
Specifically on GBP/CHF, the pullback has reached a previous strong area of interest around 1.5150. We saw this area hold as strong resistance at the beginning of the year and in May, broke and may now be support. Also, the stochastic indicator is showing on the daily time frame that the recent move lower from above 1.5400 may now be overdone. I’ve decided to take a small trade here, with a wide 200 pip stop, and an even wider target at a major resistance area that makes the trade R:R potential very interesting. Here’s what I am doing:
Long GBP/CHF full position at market (1.5147), stop at 1.4947, profit target at 1.5500
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 1.76:1. 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!