Some time has gone by since I posted a trade in GBP-CHF. Early this year I was very active in this pair, especially in January when some trades were taken using long term charts. This activity was covered in number of posts, including What a week. Since that time, no  trades using long term chart was discussed on these pages, although some trades were taken on smaller time frames. Record has been good, with most of them ending in positive territory. One more post was devoted exclusively to this cross, Pound-Franc, what now? , but that also happened some time ago, in late February. Perhaps it is time to see how the price developed since then and if it offers any clues for future.
GBP-CHF is historically one of the most volatile among the popular currency pairs, therefore getting a lot attention from traders. Possibility of 400+ pips daily moves can be very enticing. After a sell off that started in summer of 2007, this cross has reached volatility readings not seen since mid 80′s, exceeding even what happened during the famous “breaking” of Bank of England in 1992. Should be no surprise to anybody that after these historical events, price movements contracted a little during last couple of months. All financial markets are in a process of “settling down”, after the exaggerated swings from late 2008 and early 2009, and GBP-CHF is no exception. Barring emergence of new powerful fundamental developments, this process should continue for next few months. This doesn’t mean that this pair will be boring. Daily trading range will remain among the highest of actively traded crosses.

We can see how last few weeks witnessed less volatility than earlier periods. Price has moved up from an all time low of about 1.5000 to 1.7400 or so. Even though, the major down trend has not been broken yet. For that to happen latest high of about 1.8900 must be taken out. I believe price is heading in that direction and will look for long entries on smaller time frame charts. This one doesn’t lend itself to any precision trading at this time. Besides, the length of any trades generated here would not be to my liking. At this point, daily chart is about as high magnitude graph as I’m willing to use.

For the price to make a run to 1.9000 or so, it first has to get above February high of 1.7400. It failed to do just that during latest attempt, stalling at around 1.7300. Last week and a half price retreated rapidly and is currently entering potential buy zone. I’m looking at the major retracements levels of latest up swing, combined with 100 SMA. This general area should provide meaningful support. Using this chart, I don’t want to buy any specific level, but rather look for distinctive reversal price pattern to form. Points “A” and “B” are example of what I’d like to see to trigger a buy. If this chart is going to produce this situation, it should happen within next 1-2 weeks.
As I mentioned earlier, major down trend has not been broken yet. If the price moves moves under the low of about 1.5850 ( B), test of all time low is very likely. Any longer term buy would have to have a stop under “B”. I’m flexible here and, depending on what happens, might opt to use 4H chart for trading, or even 1H. My ability to recognize buy set ups will decide that. Regardless, looks to me that good buying opportunity could be just ahead, only maybe not as volatile as before.

Mike K.