The USD/CHF pair fell hard on Thursday as the markets sold off the recent spike in the value of the Dollar against the Franc. The recent action has been very bearish, and this pullback from the bounce would be expected. After all, the pair rose almost 300 pips in just a couple of sessions. The move was predicated off of a bounce from the 61.8% Fibonacci level, and the 0.90 handle.
The fact that the market is closing towards the bottom of the session range suggests that we have not seen the last of the selling in this pair. However, we still feel that it is difficult to sell for several reasons, and because of these reasons we find it a “buy only” market.
The reasons are varied, but the major ones include: European recession, Swiss National Bank intervention, and US economic strength. The first reason, isn’t’ as intuitive to many Forex traders, but the reality is that the Swiss send 80% of their exports into the European Union, and with that area struggling like it is at the moment, this is bad news for Swiss exports, and in turn bad news for the Swiss franc.
The second reason had to do with the Swiss National Bank and its “minimum acceptable rate” in the EUR/CHF pair. While it isn’t this pair directly, we don’t like the idea that the EUR/CHF is so close to the 1.20 level, and this would trip the signal for the SNB to start selling Francs. If they do that, you can be assured there would be a reaction in this pair as well.
The third reason – US economic strength – is somewhat exaggerated by the fact that growth isn’t that common currently. The US economic numbers have been a bit of a surprise, and in this kind of environment it isn’t hard to impress people. It is simply the “least worst” out of the majors right now.
With all of this in mind, we are waiting to buy this pair, and will do so on supportive candles. There is a high degree of likelihood that the session today won’t produce the signal until at least the close, but we will remain vigilant and keep our eyes open none the less.
Written by FX Empire