GBPCHF On A Tear Higher as It Breaks Resistance

Summary:

GBPCHF continues its march higher as it breaks the 1.19 level. The focus shifts to the 1.20 and then to the triangle's measured move at 1.23.

One of the most interesting currency pairs of the FX dashboard, the GBPCHF, eyes the 1.20 level. The recent breakout above 1.19 puts pressure on the price action to tackle 1.20 towards the end of the month.

Psychological levels are known to attract prices. Technical traders often use them to set price targets or as invalidation areas.

The bid behind the GBPCHF pair is not new. Traders bought it on every single dip in the last month, just like they bought the British Pound. Other GBP pairs benefited from the rise in the Pound – the EURGBP corrected, while the GBPUSD almost reached 1.30 today.

M4 Money Supply Does Help the Pound

Today’s M4 money supply release bodes well for a higher pound, but some caveats exist. The release today showed a higher savings rate for UK households and businesses.

Despite declining interest rates on deposits, UK households and businesses continue to pile out money and to pay out the debt. Approximately GBP86 million was repaid by UK households in June.

As a measure of money, M4 correlates with interest rates. However, it depends a lot on where the economy is on the business cycle. For example, during the last stages of the business cycle, inflation appears as a result of the increased money supply. In June, M4 declined, fueling a run to the GBP.

GBPCHF Breaks Above 1.19

Following a few months of consolidation in what it looks like a continuation pattern, the GBPCHF cross broke resistance. Today’s move above 1.19, two days ahead of the end of the month, fuels expectations that the end of the month flows will push it well beyond the 1.20.

To make the most of such a scenario, the best way to play it is to use the triangle that just ended to set the target for a long trade. Typically, the price travels at least 75% of its longest segment, meaning 1.23 as an appropriate target.

With stop-loss just below 1.1750, the resulting risk-reward ratio appeals to both conservative and aggressive traders.