- Recent sudden sharp rally in EUR/CHF is a big miss here.
- Good eg of a "nothing, nothing, nothing .. sudden explosion" price action due to a sea change in expectations. Usually the market would have spent the longest time consolidating unchanged conditions and lulled into a state of lazy complacency; hence the sudden burst of volatility with everyone caught one way and realizing that underlying assumptions have changed.
- For me, as a chart trader, the key signal is the initial large candle spiking outside the consolidation zone = the periscope.
- A market that has been trading in a similar lull is the 3 month EuroDollar interest rate futures. Must monitor it for the (inverse) periscope. Big trade when we get it.
- Last week, EUR short squeeze pushed it firmer against almost everything else, and yet the CHF was able to gain from 1.2084 to 1.2050. Price action reveals a lot about sustainablity of CHF strength.
- EUR/USD strength has much to do with recent higher oil prices. ECB single inflation mandate (unequivocal tightening) vs Fed dual mandate (likely easing) = asymmetric monetary policy response expected.
- Watch EUR/CHF weekly chart closely. In the last 7 weeks, price action has come to a virtual standstill below 1.2120. Market clearly wants to test the SNB's resolve to hold the floor at 1.20 but needs a catalyst to provide cover. Perhaps another EU flare up, this time involving one of the other countries now that Greece is temporarily put aside. If the CHF can hold its own during a period of generalized EUR strength, imagine what would happen when the EUR is under severe pressure.
- Am prepared to go with a break below 1.20 here.
- On 06Sep11 when SNB implemented the 1.20 peg, market shot up10 big figures from around 1.10 to above 1.20 almost instantaneously., leaving a price vacuum which we should theoretically come back to at least partially fill.
- Since the peg announcement, price has traded within a rectangular band roughly between 1.2120 and 1.2470.
- The past few days we have a confirmed downside break of the rectangle. Now trading at 1.2080. Technical downside objective is at 1.1730. If not already short, sell any pullbacks towards 1.2120.
- Chart is telling me markets want to challenge the SNB in the days/weeks ahead. Perhaps due to serious downside pressure on the EUR which the SNB alone cannot stem.
- Slight care on positioning. No longer correct to diversify book into a general Risk Off pool. This is a EUR-centric move. Shorting US equities, Copper etc will not work.
- Risk Off book performing, mostly from cable and EUR/USD, which is good as the 2 account for >70% of core book risk.
- Have just sold USD/CHF at 0.9533 (+SFH2 @ 1.0477), in half the short EUR/USD amount, thus turning half of EUR/USD short into EUR/CHF short.
- This achieves 2 objectives for me. 1. I want to reduce some of my naked long USD risk. 2. I think EUR/CHF is a good trade from a technical viewpoint as long as we stay below 1.2150. P&L volatility should be reduced from Risk On/Off swings provided the SNB does not spring any big surprise on the peg.
- [Weekly USD/CHF looks like in 5th wave of rally so worth a shot on the short side - though not something I would ever want to try on an outright basis]
- Attached chart = EUR/CHF daily. Looks very much like a topping price action. In addition to EUR weakness, one wonder if perhaps "insider trading" suspicions of the EUR/CHF floor's chief architect might perhaps contribute to the chart performing on the downside. Had previously planned to be buying EUR/CHF near to 1.2150 but have now changed my mind and gone the other way instead.
- Have today :=
- 1. taken profit on 25% of short EUR/USD 1.2680.
- 2. switched 25% of short EUR/USD to short EUR/CHF by selling USD/CHF at 0.9594 (almost high of the day). [Actual trade = Bought SFH2 @ 1.0433].
- 3. Balance of 50% - still holding (direct short EUR/USD).
- Markets tend to always want to challenge central banks' line in the sand. Buy more CHF if we close convincingly below 1.2130. Since day 1, I had thought the SNB move was foolish.
