By FXEmpire.com
The EUR/CHF pair fell on Friday as traders sold off the Euro late in the session. The pair features a “minimum acceptable exchange rate” of 1.20 as defined by the Swiss National Bank. It is this fact that has us curious as to why traders seem interested in shorting the pair at the moment, especially since the whole world knows about this level.
The fall looks like the type of action we could buy in this market. The lower we get in this pair, the more interested we are in buying as the SNB is our ultimate backstop. The gains may or may not be large, as if the SNB doesn’t have to intervene, the pair will more than likely drift higher again, but it could be a few days before we see the gains that we have come accustomed to. The gains are generally only good for 20 to 30 pips, but pips are free essentially, and over time can add up.
The swap is also positive, although barely just. The situation in Europe needs to get better for this trade to pay off over the long run, but if the market falls too much – we could see that intervention by the Swiss. Looking above, the 1.24 level seems as if it is a natural place for a move like that to run to.
The pair obviously cannot be sold. The central bank will have to get involved sub-1.20, as its very credibility will be questioned if it doesn’t. The market would find itself as low as 1.10 in very short order if the Swiss were to be found bluffing. Also, one must remember that the central bank has intervened several times over the last couple of years, so this is a threat that must be taken seriously.
One of the comments by Swiss officials was that the central bank was willing to buy an “unlimited amount of Euros” to defend the level. We may just see how many it takes in the near future. Longs only, you simply do not want to be on the wrong side of an intervention.
EUR/CHF Forecast April 2, 2012, Technical Analysis
Originally posted here
