- The British pound has rallied during the trading session on Tuesday to reach toward the 1.15 level above.
The 1.15 level is an area that has been important for some time and therefore I think we’ve got a situation where every time we get a short-term pullback it’s an opportunity to get long yet again. That being said, you should also keep in mind that the interest rate differential continues to favor the British pound, so therefore hanging onto this pair does pay you over the longer term. Furthermore, you also have to keep in mind that the Swiss National Bank has actually cut rates, something that most other major central banks have not been able to do.
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Interest Rate Differential
At the end of the day, the interest rate differential continues to favor the upside, and I do think that it is probably only a matter of time before the market clears the 1.15 level and changes the overall trend in general. In that situation, I could see the British pound reaching as high as the 1.20 CHF level, and it is worth noting that it is probably only a matter of time before the Swiss franc becomes a “funding currency” for most carry trading. This is especially true now that we’ve seen the Bank of Japan at least try to intervene in the market, while the Swiss of course will be more than willing to let the Swiss franc lose strength.
Keep in mind that the Swiss economy favors exports into the European Union, so while there is a certain amount of trade between Great Britain and Switzerland, this is a pair that will hardly get noticed by the SNB. If the EUR/CHF pair takes off to the upside, then it’s likely that we would see the GBP/CHF pair go much higher. On the other hand, if we get a short-term pullback in this area, the 1.13 level underneath is an area that offer support, especially as the 50-Day EMA sits there. I think that’s what this pair is, one that you are “buying on each dip.”
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