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Forex: Ideas You Can Trade - EURCHF Long-Term Trend After SNB Shock

Posted by Steven Hatzakis on Jan 19, 2015 10:30:00 AM

EURCHF: Pair Normalizing After an Abnormal Trading Day, Following SNB's Move to Not Artificially Maintain 1.20

The medium term daily candle chart below shows the price history of Euro Currency (EUR) versus the Swiss Franc (CHF). This currency pair is known as EURCHF, and trading near 1.0185 around time of publication, and following an extreme volatility event that occurred last week and that shocked markets.

Last Thursday in the Ideas You Can Trade series, we covered the USD/CHF pair which suffered an abrupt large drop alongside the EUR/CHF pair and other related CHF pairs, after the Swiss National Bank (SNB) announced a discontinuation of its Minimum Exchange Rate peg on the EUR/CHF at 1.20. 

Last time EURCHF was reviewed in this series was in 2013 when continued intervention found the pair supported above the 1.2000 level, since then a mostly sideways market continued, and which finally lost its support floor following the January 15th move last week. 

While that market move may seem abnormal, the market prices returned to a level that they would have traded if the peg had not been there in the first place, as can be seen from the charts below which plot the pairs trajectory over multiple time frames - thus a return to normal can be said to have happened (even if it was forceful). 

The longer term bearish channel that has been re-entered appears to be finding difficulty with a breakout above that line already. If that channel is re-entered again it could drive prices lower in CHF-priced pairs, such as the EUR/CHF - as seen in the chart below. A break above the upper line of the bearish channel would be needed for a more bullish recovery, keeping in mind that both or either of these scenarios could unfold over weeks or months ahead as the perspective is from a longer term (trend) view.

Nonetheless, following last week's volatility event, that affected a large number of CHF related pairs, the return to normal could also mean a resumption of the prior trends that had been put on hold due to the above mentioned peg. 

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

1.  BULLISH BUY ENTRY ORDER: Create a “Buy Entry Stop” @ 1.0262 with a Limit to take profit @ 1.0580 and a stop-loss @ .9970 Risk/Reward Summary: Limit risk = +318 pips profit / (-292) Stop-loss risk = Gain to Loss ratio =  1.08

2.  BEARISH SELL ENTRY ORDER: Create a “Sell Entry Stop” @ .9673 with a Limit to take profit @ .9340  and a stop-loss @ .9998  Risk/Reward Summary: Limit risk = +333 pips profit / (-325) Stop-loss risk = Gain to Loss Ratio = 1.02

Short term daily candle chart:

EURCHFDaily January 19 2015 analysis note

Medium term daily chart:

EURCHFDaily January 19 2015 note

Longer term weekly candle chart:

EURCHFWeekly January 19 2015 note

Topics: EURO, Switzerland, $CHF, Swiss franc, EURCHF, forex trading, US Dollar, Euro Swiss, technical analysis, USD, $EUR


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