Talking Points:

• The 1000-Pip Selloff in CAD/CHF

• How to Play Continued CHF Strength

• An Easy Way to Play the Other Side, too

Since May, the Swiss franc (CHF) has significantly appreciated while the Canadian dollar (CAD) has remained stagnant across the board. During that time, CADCHF has fallen by more than 1,000 pips, and the selloff in the pair accelerated earlier this month with a sharp decline from 0.8870 down to the recent lows of 0.8525, where the pair has since staged a small bounce.

The Bank of Canada (BoC) has been in the news of late, and it remains of the belief that the Canadian economic recovery will remain soft when compared to the overall global recovery. The BoC has reiterated that it is unlikely to raise rates anytime soon, and while positive GDP growth is expected, it is likely to remain below trend until at least 2015. (Canada’s monthly GDP figures are set to be released this Thursday (Oct. 31), and economists are expecting small upward growth (0.2%).)

On the other hand, the Swiss franc has been appreciating against most major currencies on the back of anti-dollar flows, as well as general euro (EUR) strength, and CADCHF bears have made sure to take advantage of that strength. It’s of note that the EURCHF peg tends to make CHF follow EUR.

If the recent CADCHF bounce continues, traders willing to buy up CHF will have an opportunity to join this trend at around 0.8700, which is the 50% Fibonacci retracement of the decline from 0.8865 to the 0.8525 lows. This level also corresponds nicely with some previous horizontal support levels that should now have turned into resistance.

Guest Commentary: 2 Simple CAD/CHF Set-ups to Choose from

Those who wish to bet against ongoing CHF strength can try to buy the pair above that 50% Fib and horizontal resistance level, or can wait until the first major descending trend line (marked in yellow) is breached.

Either way, this pair has been fairly volatile lately, meaning there are good trading opportunities in both directions. The pair is also US dollar (USD) neutral, which is helpful in today’s trading environment.

By Liam McMahon, currency strategist, GlobalFxClub.com

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.
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