New Month, New Trade


NEW TRADE - So as I've been keeping my eye on that possible opportunity to buy Cable, there's another market out there that's now begging for attention. That market is USDCHF, with the Swiss Franc dropping below parity and to its lowest levels against the US Dollar since October 2017. This means USDCHF has been pushing up, also getting some help from the EURCHF rate, which has managed to be hitting its own milestones, recently touching 1.2000 for the first time since the disastrous collapse in January 2015. And so we're left staring at a super extended market, capable of moving the other way in a risk off environment and also trading into a strong medium term resistance zone. It's important to understand that a lot of the weakness in the Franc is an offshoot of forms of Swiss central bank intervention, with the SNB actively forcing the currency lower. But now that we are back to the levels we're at, and now that I see risk markets in the process of rolling over, with global equities capable of seeing declines well in excess of 20%, it would seem the Franc is in position to rally (USDCHF lower).

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THE MANAGEMENT - I have gone ahead and taken a USDCHF short position following the latest push through 1.0000, but am also aware of the possibility for overshoot here and would only want to exit on a very clear move that suggests a structural shift in favor of the US Dollar. People forget that a trade is more than just the entry and I would only be feeling like something different is going on if USDCHF were to clear massive resistance in the form of the 2016 high at 1.0345. A sustained break above 1.0345 would end an extended period of consolidation and take the market to its highest levels since all the way back in 2010. So if we see a legitimate break above the 2016 high at 1.0345, I will have good reason to believe the market is doing something else and will need to exit the trade. Otherwise, the expectation will be for renewed USD selling and the onset of a sizable reversal the other way. The stop loss for the position has therefore been placed well above 1.0345, sitting at 1.0425 and representing a total maximum risk exposure of under 4%. I suspect it could be a little bumpy initially, before we start to get the anticipated reversal. Let's see what happens.

$USDCHF extension sets up this compelling countertrend play.

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