I have been trading EUR/CHF a lot lately. Any thoughts on this pair and where you think it’s headed? With the 1.20 floor firmly in place I am thinking it cannot go down much further from its current 1.23 level. And if safe haven deposits in Swiss banks start to reverse out of Switzerland (especially with negative rates on deposits in some large Swiss banks), I am thinking EUR/CHF could be headed up a fairly decent amount over the medium term.
I like to think of the daily habits like a game. How fast can I do them? How efficiently can I do them so there are no major errors? Usually it takes me around 2-4 hours or so depending on if I am trying to multi task or not. It can be really intellectually stimulating collecting all the proper bits of information and recording them in your files so you always have them and can explain what happened on a particular trading day using 1-4 key sentences / variables per financial instrument and the little snippets of expectations, sentiment, scenarios and global macro.
As for EUR/CHF, my macro research does not reveal any opportunity with the current information flow. The downside is limited because the SNB is not going to remove the floor just yet. They are sitting on very big paper profits to the tune of many billions or tens of billions, and the political parties and Swiss cantons will be happy with that. They are not going to jeopardize that situation by removing the peg. And the Swiss economy cannot handle a stronger franc yet. So as long as the 1.20 peg is in place, and there is some risk appetite and no more crazy EZ tensions, then the downside in EUR/CHF remains limited.
As for the bullish side, I don’t see any good opportunity there either. EUR/CHF does not want to respond to good EUR moves very well. When EUR/JPY rises 200 pips, EUR/CHF can only rise 50 pips or so. So the EUR/CHF is not acting right to good EUR news or general sentiment move. I have had some success about 1-2 weeks ago buying EUR/CHF when it tripped downside stops for a quick flip. But I stopped that as the price kept sagging and the EZ officials increased their concern about EUR strength.
I did catch part of the nice volatility move from 1.21 – 1.25, but I can’t delude myself into thinking that was pure macro related. It was macro related in the sense of lowering EZ tensions and more risk appetite causing the market to unwind bearish EUR/CHF macro trades. But the movement also had a strong component of being caught short volatility. So as EUR/CHF spiked higher, a lot of option players had to hedge themselves by buying EUR/CHF which exacerbated the up move. Once that order flow from the positioning element was finished above 1.2500, the EUR/CHF has struggled ever since. There were not enough macro buyers to prop up the prices.
The EUR/CHF move was very different from say the EUR/JPY move. The EUR/JPY move had big policy drivers behind it from the JPY side. Shinzo Abe is really backing up his threats with a lot of rhetoric but also policy actions. So as the reality has set it, it caused a lot more sustained macro buyers for EUR/JPY.
The EUR/CHF does not have any pure global macro driven policy order flow. The only potential driver for bullish EUR/CHF is if it comes from the CHF side. Like if the SNB threatens to raise the peg, or if they try more negative interest rates, or if more Swiss banks institute more negative interest rates on deposits, or increase the penalty, etc. The SNB is not going to raise the peg because it is too dangerous and unnecessary with the current market environment. So only the other ones listed above could cause more EUR/CHF bullishness. Or perhaps you can see scenario that I cannot see.
My Response #2: (February 12, 2013)
If you put a gun to my head and said long or short EUR/CHF from 1.2300, I would say long. Since the downside is limited by the 1.20 peg. So the most profit potential is all to the bullish side. Since the market is in risk appetite mode the JPY and CHF tend to depreciate. So EUR/CHF should go up in such an environment. Then there are also exists decent potential for the market to get caught short vol again and for the price to spike higher once it clears 1.2570 highs.
I just meant to say that I thought the reward risk was better in other EUR pairs, such as EUR/JPY judging by the sensitivity of the market. I just prefer things to move faster rather than later. The general rule is, the bigger the position, the more leverage you are using, the faster the market should move in your favor. That is something I learned during my high leverage news trading days.