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Occasionally countries or regions take aggressive action in the currency markets to support or suppress a currency pair.
Initially traders were skeptical. As figure 1 shows, throughout traders tested the resolve of the Bank, and the pair traded in a tight range just above 1. Throughout traders have begun to accept the new reality and are now trying to profit from it. The Swiss Bank basically acts as a backstop against drops below 1. Traders have therefore begun to bid up the pair, in attempt to get long, and then sell when a pop higher in the price occurs. Near the beginning of the year, there were much larger moves, as likely less traders were involved, and there was still some skepticism about strategy implementation.
The range is narrowing though, as traders fight for smaller and profits. All the while, the buyers are moving further away from power-house support at 1. If an entry can be made near 1. Traditional technical analysis strategies still apply, so the price is likely to break out of the triangle that it is trading in. While it may head lower to test 1. Therefore risk can still be limited to about pips, for a to pips profit depending on the entry and exit point.
Risk can also be kept much lower though just by placing a stop loss order below a recent swing low in price after the buy order is filled. A target can also be placed anywhere that provides a decent reward: Basically, the pair can be traded as a ranging type forex pair, just with the added benefit that there is power-house support at 1. The major issue of course is that 1. If trading this strategy via a forex broker, the trades may last several days to several weeks.
Therefore, be aware of the rollover credit or debit for holding a long position in that pair with your broker. The strategy is not without risks, but is a compelling and rare opportunity where fundamentals can be used to enhance a technical trading approach.
Figure 2 shows what has been playing out in Since the middle of the range has become more contained, yet opportunity is present. Theoretical Strategy Traders are providing support between 1. Warnings The major issue of course is that 1.