Trade Idea - BUY EURCHF on SNB Interventions

No one who's listened to me over the last month or so will be surprised to hear that my first trade idea since being back online is to buy EURCHF. 

(Source: cTrader / FXPro)

Looking back at the last 20 years of history, we can see that EURCHF is approaching historically low levels. In my view, this strength for the CHF is unwarranted given the permanent dovishness of the SNB and its total dislike for currency strength. 

Given the SNB is already active in the market selling CHF (see chart below with increasing currency reserves in millions - if reserves are increasing, they must be selling CHF). So my view is that we see accelerated CHF sales by the SNB in the medium term. Many will remember (and be scarred by) that fateful assertion by the SNB that they would be prepared to sell unlimited quantities of CHF to maintain EURCHF at 1.20 back in 2011. 

(Source: Trading Economics) 

So what does this mean? It means we have a very asymmetric distribution of risks in terms of trading CHF in the near term. Much more currency strength is impossible for the CHF given the SNB's aversion to a stronger currency. 

At the same time, there is a possibility that we see further weakness - not just from currency sales but also from their extreme dovishness. Looking at the Euro Area inflation number today at 3%, it seems we could well see the beginning of taper talk in the Eurozone - so we have a more hawkish ECB and relatively dovish SNB. 

To look at some key levels, the chart below simply considers some recent highs and lows to mark up points of support and resistance (excel available on request). 

30/08/2021	20d	50d	100d	200d
High	1.08329	1.09687	1.10539	1.11192
Low	1.07118	1.07118	1.07118	1.07118

(Source: Bloomberg)

Trade Structure: 

In the short-term, I'd be looking to get long at current levels (1.080) and targeting initially the 1.09687. Here I would move SL to the entry and aim for the 100d high at 1.10539. Here I would take half profit, and then aim for the 1.11192 200d high to take the rest profit for a total return of 2.65%. 

For a SL, I am actually pretty convinced this trade should be played for a while since the SNB won't tolerate a significantly stronger Franc, but just to be sure, I'd put the SL just below the recent lows. 1.07. This would be a loss of c.1% for a decent risk reward ratio. 

In terms of horizon, I'd be happy to hold this trade for a few months. We have the next SNB meeting on 23 September, so this could be an interesting period to watch. 

I will provide an update of this trade idea in each report. 

The Week Ahead - And Publishing Freedom!

 Hello everyone - I've now finished all my internships for the year and this means that I can return to publishing freedom! Hoorah. Let's quick things off again on my blog with the week ahead, looking at the key market events to watch this week.

Please follow me on Twitter @LukeYoungInvest where I will try to post a fair few live updates through the day on the markets I'm watching / trading. 

This week I might be a little less active from the trading screens as I try to recuperate a little post a busy 10 weeks on internship, but thereafter I'll be at the screens more often. 

Happy Trading. 

The Week Ahead: 

Over the weekend, lots of the news coverage continued to examine Afghanistan evacuation efforts. The Biden team also launched strikes against a few more targets in Kabul. The UK ended its presence in the country after 20 years, and the US evacuation effort was also drawing to a close. 

In Europe, the Social Democrats overtook Merkel’s Bloc in a Poll again, raising concerns for outgoing Chancellor Merkel’s Party in upcoming September elections. 

Next Week the focus will likely be on Nonfarm Payrolls data coming Friday at 1330 which will further indicate whether the Fed has made substantial further progress toward its goals. 

Economic Calendar Highlights: 

Monday: Quiet day - US Pending Home Sales / Dallas Fed 

Tuesday: Japan Jobless Rate & Industrial Production, Eurozone CPIs, Canadian GDP, US Chicago PMI & Consumer Confidence 

Wednesday: Australia Q2 GDP, UK House Prices, US ADP & ISM 

Thursday: Switzerland CPI & GDP, Eurozone PPIs, US Initial Jobless Claims

Friday: Norway Unemployment Rate, Eurozone Retail Sales, US Nonfarm Payrolls, 

Non-Sequitur: 

August is peach month, so here’s a random fact about peaches. South Carolina, despite being associated with the fruit, produces only 54000 tonnes a year - dwarfed by California’s 500k +. The US is a laggard though, supplying only 5% of the global total. We really on China for peaches - who produce 45%. 

The July Reading List

 Hi everyone, firstly... apologies this is a couple of days late. I changed up the reading list a little and ended up overestimating how many pages I could get through this month. Anyway, hopefully this is a little bit different and gives you all some summer reading ideas. 

The only thing which has changed for me since the last reading list is the view when I'm reading... I just wish it would be staying this way in the months ahead! (Yes, apologies for showing off...) 

A Little Life: Hanya Yanagihara

This was by far the best modern work of fiction I have ever read. I've never read a book which was 700 pages + which I fully wished was twice as long. 

The narrative is heartbreaking, devastating and yet completely involving. I picked this story up from Waterstones at the recommendation of the bookseller, and its the first longer work of fiction I've read in a while. 

Despite the tragedy, it's a beautiful tale, which I completely recommend. A true masterpiece. 

Leave The World Behind: Rumaan Alam 

The next book on this month's reading list is Leave the World Behind. It's actually a little bit of thriller but cuts a little bit too close to home - imagining that the internet lines go down and we are stranded in a house with strangers. 

It's quite a convoluted story, and the ending was a little disappointing in my view (although characteristic of the mystery of the wider novel), so if you want to read something with a definitive conclusion, look elsewhere. 

But this is a short fiction work, easy to read in an afternoon and gets you thinking. 

Fahrenheit 451: Ray Bradbury

A classic next up on the reading list. The infamous dystopian novel about the alternative reality of book burning in order to maintain control over the civilians (make any analogies you like to modern media / politicians hiding the truth). 

I must confess I'm fairly inexperienced in classic literature but after reading this one I'll be sure to include something more traditional in each of the upcoming reading lists. 

That said, I didn't enjoy this as much as I liked Brave New World in this month's edition, but nonetheless the parallels to the modern world in this one are quite phenomenal. 

Brave New World: Aldous Huxley

Brave New World was a great read about another dystopian future where the world revolves around efficiency, industry and scientific discovery. 

In this world, people are born and cultivated so that they will automatically fit a certain societal caste, those who are alphas, betas, gammas and deltas. With all courses of life pre-determined from birth. 

In this world of industrialisation, they pray not to God but to Ford (yes, Henry), the father of industrial efficiency and mechanisation. 

You can take whatever message you like from this book, I haven't disowned capitalism on the back of it, but you have to raise the question of even as we advance toward a more perfect society, what is left once all has been achieved? 

Unfortunately, that's all we have on the reading list this month, and "The Premonition" has been pushed back to the August list. 

Next month, I'll be reading Michael Lewis, Catherine Belton, Ron Chernow, Jordan Peterson, and Joseph Heller. 

Have a great summer.