Whenever there is uncertainty in the global economy, the investors flock to safe-haven assets such as the Swiss Franc, the Yen, and gold. However, the Swiss Franc was on a declining note against the Yen for the past six months. The reason is that the benchmark interest rate in Switzerland is at a much deeper negative territory (-0.75%) than in Japan (-0.10). Furthermore, the Swiss National Bank is ever ready to intervene in the market to keep the Swiss Franc weaker.
However, the Bank of Japan has so far made attempts to weaken the Yen either through verbal intervention or by driving the interest rates into negative territory. Moreover, the Japanese economy, being a part of the G7 group, is far bigger than the Swiss economy. Thus, issues affecting the US immediately strengthen the Yen. However, the victory of Trump in the US Presidential election, as discussed below, has slightly changed the equations between the Swiss Franc and the Japanese Yen.
The end of the US election has removed a considerable amount of volatility from the global financial markets. Furthermore, Trump’s victory speech is also expected to pacify the market. Thus, we can anticipate further unwinding of long positions in the Japanese Yen. The US CFTC (Commodity Futures and Trading Commission) data, as of mid-October, indicate that the leveraged funds, which include hedge funds and high volume traders, have decreased their long position in the Yen by as much as $5 billion dollars. The long position in the Yen has fallen to the lowest level since Jan 5.
The current account surplus of Switzerland was about CHF 17.3 billion ($17.52 billion) at the end of the second quarter of 2016 and roughly the same as that of Japan. However, the budget deficit of Switzerland is 0%, compared to -6% of Japan. This is one of the reasons for the Swiss Franc to remain strong even during normal times, unlike the Yen, which weakens when investors shrug off fears about the global economy. Thus, considering the current scenario, we forecast an uptrend in the CHFJPY pair in the near future.
Technically, after testing the established support level of 103.20, the CHFJPY is rising. The daily chart indicates that after nearly a year, the stochastic oscillator is out of the bearish zone. Thus, we can anticipate the CHFJPY pair to march upward in the weeks ahead.
So, a Forex trader can take a long position in the CHFJPY pair near the current level of 107.80. To limit losses, a stop-loss order can be placed below 106. The long position can be diluted at about 109.50.
A binary trader can purchase a one-touch call option to gain from the forecasted uptrend of the currency pair. The maximum strike level, which a trader can choose for the call option is 109.20. Finally, to allow sufficient time for the exchange rate to rise to our desired level, a trader should ensure that the contract remains valid for at least four weeks from the time of investment.
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.
