- The Swiss franc against the Japanese yen is a pair that I pay quite a bit of attention to, mainly because it has massive ramifications in the so-called carry trade.
- Keep in mind that both of these are low yielding currencies, and at this point, it’s worth noting that there is a little bit of divergence here, and using this information, you can take on other trades.
- So, for example, if we start to see more of a “risk on” type of situation, you can look to this pair and try to determine which one of the currencies is going to be stronger or weaker. And when we start to look towards a risk on move, we typically want to short the Japanese yen and the Swiss franc.
Relative Momentum, Or Lack Of
But this gives you an idea of which one is going to give you more mileage in your other trade. So, for example, let’s say you want to buy the British pound and collect some interest rate differential. You could do it against either currency. And if we get more risk on both the British pound Japanese yen and the British pound Swiss franc pair should rise.
But ultimately, when you have a weaker currency, and in this case it’s the Swiss franc, the play might be to buy the British pound against the Swiss franc because the Swiss franc is weaker. Looking at the technical analysis on this chart, you can see that we are sitting on the 168 yen level, an area that is a large round psychologically significant figure, but it’s also an area that’s been important multiple times. It’s interesting that we tried to rally during the day but then fell apart.
At this point, if we break down below the lows of the session, we could be talking about a move down to the 166 yen level. Again, it doesn’t really matter if you trade this pair. This gives you an idea of which currency you want to be short of, all things being equal. It’s going to be the Swiss franc. On the other hand, if we turn around and break above the 170 yen level, then it could show that we are starting to see the Japanese yen weaken across the board, and therefore you want to buy other currencies against the yen.
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