Potential Signal:
- I’d be a buyer of this market at the 1.09 level, with a stop loss at the 1.0750 level.
- I’d be aiming for the 1.12 level.
- On the other hand, if we get a daily close below 1.07, then I’m aiming for the 1.0550 level with a stop loss at 1.08.
The British pound plunged against the Swiss franc during the trading session here on Friday, as we continue to test a major support level in the form of the 1.07 level. The 1.07 level is an area that has been important a couple of times in the past, so it’ll be interesting to see if the buyers continue to defend this general vicinity.
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The 1.07 level is an area that I will be paying close attention to, because we can hold that level, then it’s likely that this market could bounce significantly and perhaps go looking at the 50 Day EMA near the 1.0943 level, but it is dropping from here.
Risk Appetite and This Market
Keep in mind that this currency pair is highly sensitive to risk appetite overall, as the Swiss franc is considered to be a massive safety currency. As risk appetite falls around the world, it puts in a little bit of a bid for risk appetite in general. With that being said, I believe this is a market that will be worth watching, because if we start to see a massive selloff due to concerns about the global economy, this is a pair that I would expect to fall apart.
On the other hand, if we get a more risk appetite vibe in the markets, that could add more credence to the idea of this pair rallying quite significantly, because quite frankly, it has been sold off quite viciously. On a move lower though, we could see this market go looking to the 1.05 level, which is a large, round, psychologically significant figure.
All things being equal, this is a market that you need to be cautious with, because the Swiss National Bank can get involved if the Swiss franc starts to strengthen too much, and of course this is a very volatile pair regardless. With that being the case, I think you have to look at this as a situation where you could try to find value, but you need to be very cautious with your position size. As things stand right now, I look at the area that we are in as a “200 pip decision area.”
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