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.
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.