The EUR/CHF pair isn’t exactly the most exciting market to trade. However, with the recent volatility in so many other markets, it might be a good place to look to for a bit of sanity. Beyond that, I like it for the fact that it is relatively straightforward with the attitude that drives it.
What drives the market
The biggest thing that drives the market, all things being equal, is risk appetite. The Swiss franc is considered to be one of the great ‘safety currencies’, and as a result will often gain strength when people are a bit concerned about the global markets, wars, geopolitical issues, etc.
The euro is a ‘risk on currency’, not because of the European Union is a risky place, but because it is the ‘anti-dollar.’ Remember, most things are priced in dollars, and most importantly – a lot of bonds are. If the markets are feeling a bit better about life, then the US dollar tends to drift a bit lower. The fact that the EUR/USD pair is the biggest market in the world, it somewhat automatically will drive the pair higher.
The technical analysis
The pair has a couple of clearly defined areas to trade from, which is something I like. Remember, this pair tends to move a bit slowly, so patience will be needed. (Can you imagine in THIS environment?) As you can see from the chart, I have a blue and a lavender area marked.
The blue rectangle signifies an area where I am looking to buy this pair. On the other side of the market, we have the lavender rectangle, an area that suggests selling is what we should do.
The ‘line in the sane’ is at the 1.1350 level. This is where the market ‘flips’, and therefore it should be paid attention to if we cross it. The market is currently in the ‘sell zone’, which makes sense considering that the stock markets have been so volatile, and the bonds markets have been very bullish. (Showing a run to safety.)
At this point, I do not think that we are going to break through the bottom of the lavender area, but obviously, if we do – that’s a very negative move and should cause an acceleration of negativity. On a daily close above that ‘line in the sand’, then we should see more of a ‘risk on’ move overall, and this should send the euro higher against the Franc.