EURCHF, Where Are We Going From Here?
The Swiss National Bank (SNB) decision to lift EURCHF 1.2000 floor took many by surprise, forcing giant FX brokers into their insolvency graves. We have foreseen the violation of Euro-Swiss floor in a market research we published in August, 2014.
The heavy selling seen in CHF pairs and crosses were boosted by the stop loss orders that were estimated to be worth billions of dollars. Nevertheless, we made a note the SNB negative rates will be effective as of 22 January, 2015.
It is therefore likely traders will cut their CHF holdings as a result once the market finished digesting the removal of the floor. Please be aware EURCHF is an extremely volatile currency pair. We have also noted the spread has widened for the pair in multiple trading platforms. This is certainly one of our riskiest positions in the Forex market but the Return on Investment (ROI) increases the attractiveness of the long trade.
EURCHF Technical Analysis
For our FX trading strategy we are combining the fundamental end of the market as well as our technical models in order to enhance our entry to the market.
EURCHF 60 Minutes Chart
Please click on the chart to enlarge:
Reversed Head-And-Shoulders (H&S) were affirmed on the hourly chart, indicating a possible trend reversal to the heavy losses. At he same breath we have noted such patterns in the past and as the stops accumulate beneath the right-hand shoulder an attractive opportunity is created for stop hunting operations as the volatility is unlikely to subside.
If we were to execute a long trade at market price it may require a protective stop loss order of over +400 pips, which we are reluctant to place as this is not a monthly or a weekly entry. Our trading strategy would to patiently wait for a lower price in order to enter the market. Our preference would be a to enter below 0.9665 and use an intraday time frame to enhance our entry price. We refuse to place entry orders. The key to the strategy will be to enter before the weekly close, which is before the end of today’s session.
EURCHF Daily Chart
Please click on the chart to enlarge:
The daily chart has a moderate potential for painting an inverted hammer, a classic Japanese reversal pattern. A lower price than current levels would not negate the bullish reversal pattern at the time of this writing. We are fully aware of the upcoming elections in Greece on 25 January and the European Central Bank (ECB) meeting on 22 January, which are considered as risk events in the market. Our aim it to be with a sufficient profit by Thursday (22 January), which would allow us to shift the protective stop to the entry.
EURCHF Trading Strategy
Please note we may decide to enter at a different price than our preference. As we are experiencing a delay in our mailing functionality we suggest following us on Twitter as will release an update when we decide to enter. Our target for the long trade is 1.0700, beneath the 50.00% Fibonacci retracement. Our protective stop loss order price will be determined with the entry on this page. The size of the stop is likely to exceed 200 pips while maintaining a healthy Risk-Ratio (RR).
We highlight that it is essential to monitor the spread and the margin requirement for EURCHF as it has been altered by various brokers. The risk level for the trade is high but aside the technical analysis we believe the negative rates will soon be priced-in in the Forex market.
*The price in the charts have changed due to volatile market conditions.
16/01/15 UPDATE: We are executing the long trade at market price (0.9831), protective stop layered at 0.9510, targeting 1.0700. It may not be the finest entry but we are willing to take it.
16/01/15 UPDATE II: Instant profit noted in EURCHF since the long trade was executed not long ago. EURCHF is currently trading at 0.9939. We are closing 10% of the long trade at market price.
19/01/15 UPDATE: EURCHF is trading at 1.0012 at the time of this writing, ensuring the long trade is in a decent profit. Although we failed to gain a sufficient distance from the market we are still shifting the protective stop to the entry and close 25% of the long trade at market price.
19/01/15 UPDATE II: EURCHF is trading at 1.0079 at the time of this writing, ensuring the long trade is in over +200 pips. We are closing 15% of the long trade at market price.
19/01/14 UPDATE III: EURCHF is trading at 1.0180 at the time of this writing, ensuring the trade is in over +300 pips profit. We are closing 20% of the long trade at market price.
19/01/15 UPDATE IV: EURCHF is trading at 1.0204 at the time of this writing. We are closing 10% of the trade at market price to reduce our EUR exposure ahead of Thursday and shift the protective stop to 0.9904.
22/01/15 UPDATE: EURCHF triggered the protective stop order that we shifted above the entry. We have liquidated most of the trade with a decent profit and are rather satisfied with the outcome.