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Forex: Ideas You Can Trade - USDCHF Collapses As Swiss Franc Surges

Posted by Steven Hatzakis on Jan 15, 2015 6:22:00 AM

USDCHF: Huge Drop After Swiss National Bank Announces Discontinuation of Minimum Exchange Rate

The medium term daily candle chart below shows the price history of United States Dollar (USD) versus the Swiss Franc (CHF). This currency pair is known as USDCHF, and after reaching a high above 1.02 the pair collapsed to 0.7406 in just a few minutes as the Swiss National Bank (SNB) announced a discontinuation of its Minimum Exchange Rate peg for the EUR/CHF at 1.2000 (i.e. the central bank won't intervene in the market to  prevent a franc rise as it had previously). 

Last time USDCHF was reviewed in Ideas You Can Trade the pair had reached parity, and now apparently the change in policy from the SNB - following recent continued USD strength - has been the main catalyst in triggering this move today. 

The move will now affect technical levels and perhaps change the overall trend, as an underlying fundamental policy shift already helped move the pair over 1400 pips lower in just a few hours.

While the trend today is probably as bearish as you can find in a currency's daily volatility, in normal conditions, a volatile recovery could follow - and then another subsequent drop even lower. Therefore, extreme caution as gaps or large moves could push through stop-loss orders, and adjusting position sizes may be needed from traders.

Below are examples of how to trade a bearish continuation or a bullish reversal:

1.  BULLISH BUY ENTRY ORDER: Create a “Buy Entry Stop” @ .8951 with a Limit to take profit @ .8999 and a stop-loss @ .8912 Risk/Reward Summary: Limit risk = +48 pips profit / (-39) Stop-loss risk = Gain to Loss ratio =  1.23

2.  BEARISH SELL ENTRY ORDER: Create a “Sell Entry Stop” @ .8744 with a Limit to take profit @ .8701  and a stop-loss @ .8782  Risk/Reward Summary: Limit risk = +43 pips profit / (-38) Stop-loss risk = Gain to Loss Ratio =1.13

Medium term daily candle chart:

USDCHFDaily January 15 2015 note

Topics: USDCHF, Switzerland, $CHF, forex trading, US Dollar, technical analysis, USD, Dollar Swiss

 

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