EURCHF is a popular currency pair among forex traders, and can be used in various strategies. However, few years ago the Swiss Franc used to be pegged to the Euro, resulting in an anomaly which lasted 3 years, the peg was finally ended in early 2015, resulting in a massive EURCHF drop, the pair has been tracing its normal market balance ever since.
The Swiss Franc itself is seen as a safe haven currency, by many investors, whereas the Euro is seen as a risk currency. In fundamental terms, EURCHF can be used to make directional trades, in the direction of the underling investor risk appetite. And vice versa, this pair can also indicate very clearly investor risk appetite. When EURCHF is rising, risk appetite is rising, and when the pair is falling, risk appetite is falling, but there are significant differences from time to time, as to which comes first. Sometimes the movement of this currency pair will actually lead investor mindset, and sometimes it will lag behind.
There are further implications of this risk appetite factor, and EURCHF could be used to try and predict risk appetite trends, in order to better trade other currencies and moves in the stock market. So instead of treating it as just another ‘average’ currency pair, you should treat it as a reflection of risk appetite, which is a very important factor in all kinds of trading.
How to Trade EURCHF
EURCHF can be traded in terms of risk appetite analysis, in a very simple way based on intermarket analysis, and through technical analysis. Often there are gaps and surprise moves in this market, but most of them can actually be predicted through swing trading theory.
EURCHF daily chart – The short arrow indicates the lowest valid swing high, which is taken out few days later by an up day (longer arrow), at this point the trend changes from down to up, but the market continues to trade deceptively in the coming days, rallying for few more days and then losing momentum going into April. There were few swing lows formed during that period, but there was not a single swing low to have been breached, so the trend remained up, and finally the surprise gap-up move came, and the market started to rally impressively.
This means that EURCHF does follow swing trading theory, and it may be possible to do dependable such analysis on the daily chart, but it’s wise to also watch the risk appetite trends. Indicators such as moving averages are not very useful, at least not as stand-alone indicators. Other indicators such as Parabolic SAR are useful, and can be used to assess stop loss placement.
Parabolic SAR is a good indicator, but is not good enough so as to make directional trades on its signals. It will give false signals, just like many other indicators do. In some market conditions it tends to work better, but you can still use it alongside swing trading theory and other analysis methods, as a secondary indicator.
EURCHF can be used in many clever strategies where the need is to offset huge shifts in risk appetite, if something big happens, EURCHF will move dramatically. Beyond that, there are the various technical tools you can use, but always remember that fundamentals and risk appetite especially, can override all technical signals. All in all EURCHF is a very interesting and overlooked pair, following the decoupling of 2015, today this currency pair is a true market that moves freely, and in interesting ways.