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GBPCHF – Will It Break Above 1.20?

The GBPCHF cross pair used to be one of the most volatile currency pairs of the FX dashboard. When the Swiss National Bank (SNB) dropped the EURCHF exchange rate floor in January 2015, everyone fretted about the huge gap seen on the EURCHF charts.

However, the “star” of the day was the GBPCHF. It put a wider gap, confirming the higher Average True Range it has.

Yet, things have changed lately. More precisely, since the Brexit referendum in June 2016, the GBP pairs settled in tight ranges. That is, tight ranges compared to how the British Pound moved before the referendum.

As the Brexit negotiations dragged, the uncertainty about a deal or no-deal Brexit made the GBP pairs uninteresting for traders. Take the EUR to GBP exchange rate, for instance – it hovers around 0.90 in the last two trading months, with no signs that things will change soon.

But the GBP is only one part of the GBPCHF story. As always, in the case of an exchange rate, it reflects the value of one currency in terms of another.

How About the CHF?

Viewed as a safe-haven currency, it is openly manipulated by its central bank – the Swiss National Bank. A recent report by the Peterson Institute for International Economics reveals that the SNB intervened massively since March 2020 to keep the CHF down.

It bought USD, EUR, and other reserve currencies in the three months following the coronavirus outbreak, putting a floor against further GBPCHF depreciation.

If history taught us something, is to not mess with central banks – even if they fail from time to time, as the SNB did in 2015. Assuming the SNB learned its lesson, the GBPCHF looks bullish here, from both a fundamental (SNB selling CHF and buying reserve currencies) and a technical perspective.

GBPCHF Technical Picture

For the last two weeks of June, the GBPCHF formed an inversed head and shoulders pattern – a reversal pattern recently completed. The typical price action that follows such a pattern retests its neckline and goes for the measured move. The measured move, though, has only a symbolic value, as it is the minimum distance that the price must travel to confirm the pattern.

The GBPCHF price action that followed the reversal pattern looks bullish here. First, it retested the neckline. Second, it continues to put new higher highs, while holding the series of higher lows.

How to Trade It

Before anything, a new higher high signals further strength. That is the entry on the long side – around 1.1950. Also, a stop-loss at 1.17 protects the series of higher lows.

Armed with the two levels, we can set the take profit by using a suitable risk-reward ratio or 1:2 or 1:3. Depending on the risk willing to take and the time horizon to keep a trade open, the take profit is either 1.2450 or 1.27.

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GBPCHF Trading Setup

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