A dip in the business investment and manufacturing PMI caused the Pound to spiral downwards last week. On the contrary, strong manufacturing PMI enabled the Swiss Franc to strengthen against the Pound and other rival currencies. The rising support for anti-EU parties in Europe also increased the demand for the safe-haven currency. Ultimately, the GBPCHF recorded a low of 1.2268 on Friday last week. We forecast a trend reversal in the currency pair on the basis of the facts presented below.
While presenting the UK’s budget last Wednesday, Philip Hammond, the Chancellor of the Exchequer, presented an upbeat growth forecast for the current year. On the basis of forecasts provided by the Office for Budgetary Responsibility, the Chancellor raised the 2017 GDP growth forecast to 2%, from the prior outlook of 1.7% issued in November 2016. The Chancellor also stated that the government borrowing had fallen by £16 billion due to unexpected resilience shown by the economy in the aftermath of the Brexit referendum.
In the case of Switzerland, goods and services exports contribute to nearly two-thirds of the GDP. The economy faces headwinds in the form of a strong currency and grew only 0.1% q-o-q in the December quarter, versus analysts’ expectation of a 0.5% growth. Now, the upcoming elections in Europe threaten to strengthen the Franc further. To safeguard the interests of its exporters, the Swiss National Bank will continue to intervene in the market and also hold negative interest rates to shy away investors. This fact was confirmed by the SNB Chair Thomas Jordan in a recent interview with Schweiz am Wochenende newspaper. Thus, fundamentally, we can expect a short-term rally in the GBPCHF pair.
Technically, the pair is exchanging hands near the strong support level of 1.2250. The GBPCHF pair remains oversold as evident from the stochastic indicator’s reading of about zero. So, a trader can look forward to a firm reversal in the GBPCHF pair.
With a stop-loss order below 1.2150, a long position can be opened near 1.2280. The long position can be sold for profit near 1.2440 where the next major resistance exists.
A replica of the long trade in the Forex market can be created in a binary market by purchasing a high or above contract from a suitable binary broker. It is recommended to set up the trade when the exchange rate of GBPCHF is about 1.2280. From the choice of expiry dates offered by the binary broker, a date near March 21st should be selected to improve the chances of ending the trade in the money.
Disclaimer: Any financial trading analysis offered here is our opinion and is not intended as advice or direction for investors. We cannot guarantee the success of any trades made as a consequence of this article, and we encourage traders to incorporate a strong money management strategy to limit losses when they enter the markets. Please use this article as part of your own research before formulating strategies prior to trading.
