Advertisement
Advertisement

Holes Appearing in the Swiss Franc

By:
FX Empire Editorial Board

The USDCHF touched 1.02159 during the Far East trading session on the 23rd, the last time it touched that level on 18 November it then fell back down to

Holes Appearing in the Swiss Franc

The USDCHF touched 1.02159 during the Far East trading session on the 23rd, the last time it touched that level on 18 November it then fell back down to 1.01207.  Levels above 1.02000 have not been seen since the Swiss central bank unpegged the Franc in January, which then saw the Swiss Franc slide to below 0.74000 within a few days.

This price level represents a strong resistance point for the USDCHF to continue going north. It would seem likely there may be a correction from here as this will also be a hard level to break psychologically. However many things have changed since January, in particular the Federal Reserve talk of increasing interest rates, which has strengthened the US dollar against all major currencies. Add to that low Swiss GDP growth and negative interest rates and the Swiss Franc seems likely to weaken further in the coming months.

Wednesday brings the release of the Swiss Consumption Indicator, an indicator of consumer activity, the largest sector of GDP in Switzerland. A number in line with expectations will probably see the current up trend for USDCHF continue. The previous figure was 1.65 and 1.62 is expected for this release, a lower figure would give even more momentum to the current bull trend. Thursday will see Industrial Production figures released, with an expected -1.2% compared to a previous of -2.4%.

From the US we will see various figures released on Wednesday; the most important will be for Personal Consumption Expenditures price index (PCE) and for Durable Goods Orders. The PCE figure is an indicator of inflation which the Fed is tracking closely in its monetary policy decision making.
The forecast for this number is 0.2% with a previous number of -0.1%

Durable Goods Orders are forecast at 1.5% with a previous -1.2% any number that comes out lower than expected may be bearish for the US Dollar and given the highly over bought markets for the USD may see a sell off for the green back.

If you think the USDCHF is about to reverse its bull trend over the next week, then you may buy a Put option which gives you the right to sell USDCHF at a pre-set price (strike) for a specific date (expiry) and an amount of your choice.

The screenshot below shows a USDCHF Put with 1.02078 strike, expiry 7 days for $10,000 would cost $57.14, which is also the maximum possible loss.

1

Hitting the Scenarios button gives you this chart showing the profit and loss profile of the above option.

2

If on the other hand you feel that USDCHF will continue to rise, then you may buy a Call option which gives you the right to buy USDCHF at a pre-set strike, expiry and amount of your choice.
The screenshot below shows a Call option on USDCHF with a 1.02067 strike, expiry 7 days and for $10,000 would cost $55.12, which would also be the maximum possible loss.

 

3

The screenshot below shows the profit and loss profile of the above Call option.

4

Risk warning: Forward Rate Agreements, Options and CFDs (OTC Trading) are leveraged products that carry a substantial risk of loss up to your invested capital and may not be suitable for everyone. Please ensure that you understand fully the risks involved and do not invest money you cannot afford to lose. Our group of companies through its subsidiaries is licensed by the Cyprus Securities & Exchange Commission (Easy Forex Trading Ltd- CySEC, License Number 079/07), which has been passported in the European Union through the MiFID Directive and in Australia by ASIC (Easy Markets Pty Ltd -AFS license No. 246566).

This article is a guest blog written by easy-forex

About the Author

Did you find this article useful?

Advertisement