If you’re someone who trades currencies regularly, then you’ve no doubt noticed that the European government has placed a peg on the pair EUR/CHF. For the last couple months I’ve been trying to find a way to take advantage of the fact that the pair won’t go down. I was wondering if the positive interest rate differential would be the key to that. If someone were to have a long carry trade on the pair and just reap the interest, what would be the pros and cons of it? But I do realize that the ECB will have their rate decision tomorrow, so clearly that will make the difference of weather or not this would work.
Also, I know margin is a double edged sword, but because of the peg it would at least lower the risk of loss, and if the they uphold the peg for a long time then all I would end up paying is the spread, which would take a while to make back, but I’m sort of looking for a long term investment anyway. So I think that it could be very profitable with margin.
I’m just interested to see what the baby pips community thinks? :13:
First, it’s not the “European” government that has put a floor under EUR/CHF at 1.20. It’s the Swiss National Bank.
Second, putting a floor under the market isn’t the same thing has pegging. The latter implies a fixed price relationship, which isn’t the case here (though the market does trade like it).
And no, hard floors (or ceilings) are not often put in on the major currencies like this, though central banks will intervene at times to limit gains/losses and/or take some of the momentum out of a move.
As for playing EUR/CHF, the interest rates are so close at this point that you probably won’t benefit from carry. You can go long the cross in expectation that eventually it will move higher, and/or maybe clip a few pips here an there as it dips and bounces. The big scary risk is that at some point the SNB lets it go and the rate plummets.
if you would like to see someone screw up their trades, take a look at this guy, he had hiiiiiiiigh hopes of this EUR/CHF thingy and look ZuluTrade - Signal Provider Performance - FOREX SIXTH SENSE his positions have been open for over 200 days lol, hes still hoping things will turn in his favor
That’s not taking advantage of the Eur/Chf peg. You’ll just tie up capital in a flat untradeable market while every other pair still has opportunities.
Here’s the [B]situation[/B]… The SNB has stated that they are poised to buy an UNLIMITED amount of Euros in exchange sell their Franc. Hell, they’ve even been increasing their Franc reserves so they have enough to sell for Euros!
Now to take [B]advantage[/B]… Think if you were the SNB, what would you do with all those Euros? Not hold on to them and rack up huge reserves of such a risky(crappy) currency. The SNB’s books have been showing a small DECREASE in Euro reserves. I wonder where all those Euros have been going that they’re buying… Glance at the Eur/Aud Eur/Nzd Eur/Gbp charts since the SNB started actively defending the peg. If you’ve been following market news you would have heard desks buying Aud & Nzd with the SNB’s Euros. Trading with the bank would be taking advantage of this situation.
Wow what a fool. Going off the SNB’s words about an increase to the floor. There’s a reason why the SNB says stuff like that. Doesn’t hurt to have as many bulls on their side as possible.
lol. thats a good lesson to learn from, better to trade what you see and not some crazy prediction, but ofcourse still pay attention to important news. i used to subscribe to this guy on zulu, but LUCKILY i dumped him right before he did those disaster trades. better to trade something more short term, like when euro guys cut the interest rate last week.
First up, can we drop the phrase ‘European Government’ - there is no such thing!! But to give my take on your question, as a chart I have considered EUR/CHF untradeable since the SNB put a floor under 1.2. There is no reason for the Euro to rise against the Swiss Franc, and the SNB won’t let it drop below 1.2, so it is just in limbo. Interest rates are similarly entwined, so it’s not a Pair I even look in on during the week, these days. If Price moves away from 1.2 then that’s a different kettle of fish - if the SNB position remains unchanged then I would take short setups back towards the 1.2 level.
EmaraldEyes is correct in saying that the wider ramifications of this situation can be traded on other charts, but for me any setups would show up in TA of the other charts so is slightly off the topic of this question.
So, lets say you had a strategy that whenever the EUR/CHF hit something like 1.214 you go long. Say you had an account of 15K CHF, you could go long 10 lots, and as long as the floor holds, you will never get margin called. Your strategy might be to hold with no SL and close at 1.215 for 10 pips profit, so $1000. The sawp on this is pretty negligible (-0.03%/yr, so about 83 CHF cents a day on 10 lots), so the main worry is that the price floor drops. The other worry would be that because the volatility is so low that you won’t actually get much from this, because that might only happen a couple times a year. Am I missing something in this strategy?
