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Day one: our USD/CHF trade

Potential strategy: buy USD/CHF at 0.9075, with a stop loss at 0.8965, and a potential profit target at 0.9210. Level at the time of writing 0.9094.

Technically momentum is lower, although the daily MACD is pushing back to the zero line. On a one hour chart however, USD/CHF is moving sideways and looks more attractive for a short-term trade. I like to buy the pair on a slight dip to 0.9075, just above the 38.2% retracement of the October rally.

On the daily chart I have looked at the daily Bollinger bands and feel placing stops below the lower band, but also the October 3 low of 0.9068 make sense in case the political situation shows no signs of a deal. On the upside I have looked at placing a limit below the 50% retracement of the September to October sell-off at 0.9212. This is also around the upper band of the Bollinger band.

I favour buying dips in the pair, as a lot of the positive price action on Thursday and Friday was driven on signs US politicians will come to agreement on raising the debt ceiling. With no deal materialising over the weekend and talks subsequently breaking down in the Senate, traders could look at unwinding a number of recent USD longs, although I don’t suspect it will be too dramatic – hence my view to buy dips.

October 17 is the soft deadline by which the US will hit its debt ceiling, once we go past that date with agreement the US should officially have around $30 billion in funds to pay essential services. This could weaken the USD, however ultimately the market will be asking whether the US will actually default on its debt obligations and consensus still feels the likelihood of this happening is very low.

This trade is purely a play on the US coming to an agreement on its fiscal issues. Given there is always a chance the US doesn’t get agreement in the short term, it is imperative we have a stop loss on the trade as traders will look to pile into safe-havens, such as CHF, JPY and US treasuries. 

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USD/CHF

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