I have been reading and studying possibilities based on my latest idea, buying (long) EUR/CHF above the 1.20 level. The first and foremost fundamental reason for this trade is the theoretical "floor" that the SNB (Swiss National Bank) has set for this currency pair. The premise of this floor is that in order to maintain (inflation / deflation?). The last time 1.20 came into play, this currency pair touched a low of 1.2012 in June of 2012 (numerically poetic?). This happened on June the 9th, of 2012, at 1:02 pm. The Swiss National Bank promptly intervened by selling their own currency / purchasing foreign currency thus driving the exchange rate higher on the pair.
Over a period of weeks, several interventions, to keep the 1.20 minimum exchange rate in place, the last occurring in September of 2012, the pair had a sustainable rally.
After a period of 9 days after the last intervention, the pair touched a high of 1.2180. Over a period of two weeks, once the rally was over, the pair retraced down to 1.2037 over a period of 10 weeks. After which additional movements led to the EUR/CHF pair to move up to 1.2571 (peak) on January 22nd, 2013, and later to 1.2648 on June 22nd, of 2013 (which was were to take profits if you were long this pair at that time).
Obviously, the profits on the successive movements for this pair, occurred well after the last intervention, where patience would have been the key to getting the most out of the investment (months).
My idea on this pair (I have already started purchasing) and laying the groundwork and conditions for additional purchasing (with a small fraction of the margin I have available) is to scale into the investment. Rather than purchasing at a set price with my entire allotment (the cash/margin) I intend to use, I am placing several orders to purchase as the price drops closer to the 1.20 "floor". I have started purchasing as of 1.20562 on August 28th at 06:04. I have additional contract orders to purchase in increments of roughly 10 points below said purchase price down to the 1.20 area.
As illustrated in this 4 hour chart, my pending orders are placed and will not be activated unless the price visits those levels, whereupon additional contracts are added to my position. Should those areas not be touched, my risk level remains even, and the potential reward is also remains even. Should intervention occur successfully, additional contracts could be purchased as the currency pair moves higher, but this would have to done carefully. My stop loss is established, but fairly lower that the 1.1950-1.20 mark where I imagine stops placed by other institutions and traders to have them, (my policy is to not publish my exact stop so that I do not feed the algorithmic traders/black boxes).
So why the floor of 1.20? According to a press release the risk of deflationary pressure on the Swiss Economy increases below this level. Fair enough.
There is a rumor that the SNB will introduce additional measures to maintain their exchange rate with the Euro. First, the possibility of negative rates where the SNB imposes negative interest rates to discourage foreigners from holding Swiss Francs (CHF). This has been done already, during the 1970s. Such an event would make holding Swiss Francs more expensive, and thus encourage other currency pairs to appreciate vs the Swiss Franc over time.
Another rumor is that the SNB will raise this line in the sand from 1.20 to 1.25 or even 1.30...raising the possibility of a profit of approximately 500 to 1000 pips just for buying at or near 1.20, mind you it is just a rumor, and the amount of CHF selling that the SNB would need to manifest a move like that and maintain it is staggering, but again, trading is about ideas followed by action, with no guarantees.
The other side of this trade probably has a mess of Stop-loss orders on the EUR vs the CHF below 1.20 where positions would be liquidated, thus driving the currency pair down even further below 1.20. Should intervention not occur as planned or even fail, I have skimmed one academic paper that states that the currency pair would be trading about 1000+ points lower, say at 1.10 or lower.
This is a game of patience, and it is not for the faint of heart.
Over a period of weeks, several interventions, to keep the 1.20 minimum exchange rate in place, the last occurring in September of 2012, the pair had a sustainable rally.
After a period of 9 days after the last intervention, the pair touched a high of 1.2180. Over a period of two weeks, once the rally was over, the pair retraced down to 1.2037 over a period of 10 weeks. After which additional movements led to the EUR/CHF pair to move up to 1.2571 (peak) on January 22nd, 2013, and later to 1.2648 on June 22nd, of 2013 (which was were to take profits if you were long this pair at that time).
Obviously, the profits on the successive movements for this pair, occurred well after the last intervention, where patience would have been the key to getting the most out of the investment (months).
My idea on this pair (I have already started purchasing) and laying the groundwork and conditions for additional purchasing (with a small fraction of the margin I have available) is to scale into the investment. Rather than purchasing at a set price with my entire allotment (the cash/margin) I intend to use, I am placing several orders to purchase as the price drops closer to the 1.20 "floor". I have started purchasing as of 1.20562 on August 28th at 06:04. I have additional contract orders to purchase in increments of roughly 10 points below said purchase price down to the 1.20 area.
As illustrated in this 4 hour chart, my pending orders are placed and will not be activated unless the price visits those levels, whereupon additional contracts are added to my position. Should those areas not be touched, my risk level remains even, and the potential reward is also remains even. Should intervention occur successfully, additional contracts could be purchased as the currency pair moves higher, but this would have to done carefully. My stop loss is established, but fairly lower that the 1.1950-1.20 mark where I imagine stops placed by other institutions and traders to have them, (my policy is to not publish my exact stop so that I do not feed the algorithmic traders/black boxes).
So why the floor of 1.20? According to a press release the risk of deflationary pressure on the Swiss Economy increases below this level. Fair enough.
There is a rumor that the SNB will introduce additional measures to maintain their exchange rate with the Euro. First, the possibility of negative rates where the SNB imposes negative interest rates to discourage foreigners from holding Swiss Francs (CHF). This has been done already, during the 1970s. Such an event would make holding Swiss Francs more expensive, and thus encourage other currency pairs to appreciate vs the Swiss Franc over time.
Another rumor is that the SNB will raise this line in the sand from 1.20 to 1.25 or even 1.30...raising the possibility of a profit of approximately 500 to 1000 pips just for buying at or near 1.20, mind you it is just a rumor, and the amount of CHF selling that the SNB would need to manifest a move like that and maintain it is staggering, but again, trading is about ideas followed by action, with no guarantees.
The other side of this trade probably has a mess of Stop-loss orders on the EUR vs the CHF below 1.20 where positions would be liquidated, thus driving the currency pair down even further below 1.20. Should intervention not occur as planned or even fail, I have skimmed one academic paper that states that the currency pair would be trading about 1000+ points lower, say at 1.10 or lower.
This is a game of patience, and it is not for the faint of heart.
