This week we are shorting USDCHF using COT data as our rationale.
COT data reveals an incredible inside intelligence. Despite the myth that only non-commercial(Large speculators) are important to observe, commercials(Hedgers) have the same importance.
Non-commercials are responsible for fuelling trends while commercials to cap or halt the trends. And even with a huge amount of capital, these two groups have, one moment their buying/selling power exhausts and its in that moment that trends changes. Another fact is this change also occur when open interest reaches a peak, if both occur at the same moment we have a really strong signal.
So when non-commercial buying power exhausts its time to take profit, and we should see the start of a downtrend or a pullback. When commercial selling power exhausts we are about to see the start of a downtrend. I hope you all followed me.
So having this in mind we this week are shorting USDCHF
From a monetary perspective, SNB (Swiss National Bank) has reduced its balance sheet since December 2017. By selling its foreign assets like Government bonds and Shares on the stock exchange. Prompting CHF appreciation as inflows pick up. April and to some extend June saw the balance sheet pick up again but has not surpassed December 2017 highs. This looks clearly like a shadow balance sheet unwind inline with SNB members comments. If the balance sheet unwind picks up in the coming month CHF could appreciate massively. Further supporting the Franc are Italian political uncertainties, driving European investors to swap Euros for Francs. Italian political risk is not likely to resolve before Autumn this year.
On the other side of the coin is USD. Macro data points at a cycle high for the greenback and further appreciation will and only are hinged on trade war flows. Any ease or positive comments on trade war rhetoric will prompt USD long rebalancing.
Technically USDCHF is capped at parity and the Daily chart has fired off an InsideBar which is an ideal signal for risk management.
The risk to the Trade
Should sight deposits gain momentum, which is a gauge for SNB currency intervention. Then CHF could momentarily depreciate. Sight deposits are published every Monday on SNB’s web page.