Friday, March 23, 2012

Is It Time To Buy The EURCHF

One of the big questions for Forex traders now is whether to Buy the EURCHF around 1.2060 as it nears the 1.2000 price floor from the Swiss National Bank.  (For those unfamiliar, the SNB has placed a price floor on the EURCHF exchange rate at 1.2000. The purpose being to keep the Swiss franc weaker and allow Switzerland’s export market to remain healthy).  There has been lots of back and forth on this subject, but pretty much these are the two theories

Bullish – The SNB has indicated that it will keep its price floor at 1.2000.  Therefore, buying around 1.2050 is a low risk high reward play as the downside is limited to 1.20, but upside is towards 1.23 or 1.25 if the SNB raises its price floor. Also, its not much, and depends by broker, but many Forex traders are also accruing a positive yield return by buying the EURCHF.

Bearish – Well, maybe not bearish, as it may not be a good idea to sell into a known price floor, we’ll call this view the “Avoid the Trade” camp.  On this side, Forex traders aren’t excited about the EURCHF’s potential, even with the price floor.  The reason is that much the SNB working to weaken the franc is dependent on Switzerland’s overall economic growth.  With recent Swiss Trade Balance, CPI, and Industrial Production figures all pointed to relative financial health in the country, the central bank’s need to apply its aggressive intervention has decreased.  Also, the fact that even with the price floor, the EURCHF has tended quickly trade back towards 1.20 after any pops above 1.21 shows that franc demand continues to be very strong from the general public.  As such, although it’s hard to anticipate the floor falling to 1.15 or lower, barring any moves from the SNB, the EURCHF’s gains will remain limited.

Overall, consensus opinion has been favoring to buy the EURCHF ahead of the price floor, but one needs to be patient.  More thoughts from the rest of the Forex trading world:

Joel Kruger at Daily FXLooking to Buy EUR/CHF
We don’t usually incorporate fundamentals into our trade ideas but it is hard to ignore the very well publicized SNB 1.2000 floor on the cross and ability for the market to remain so well supported ahead of the barrier. Still, the market is technically in the process of carving a major bottom on the longer-term chart, and we continue to project additional upside from here.  Read More 

UBS EURCHF Floor to 1.3000 (FX Street)
UBS Managing Director of Foreign Exchange Strategy  M.Mohi-uddin, “…we remain cautious about Swiss franc strength at current levels and … the authorities will eventually have to raise the EUR/CHF floor target towards 1.30 by year end if deflation becomes entrenched…”  Read More

Billions in Stop Loss orders below 1.2000 (Forex Live)
This article from Forex live is from last month, but the idea still exists as Forex traders need to keep in mind that the SNB’s pockets aren’t unlimted and technical forces of a break below 1.2000 could cause things in the EURCHF to look ugly quickly.

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