You Can’t Pay Me Enough to Trade This Cross…

In currencies, you can buy a pair just as easily as you can short a pair. …and usually I’ll have an opinion on which way I’d rather trade a pair.

I’ll buy if I’m bullish on a particular currency pair, and think it’s heading higher OR I’ll short it if I believe the pair is heading lower. That’s why I’m open to buying or shorting most Forex pairs either way.

But just because I look at all the 60 tradable pairs worldwide for opportunities, does NOT mean that I’m willing to trade all of them.

You can’t find a better example of that than the GBP/CHF (pound/Swiss franc). As far as I’m concerned, it’s the absolute worst currency cross in the market. It’s one of the few currency crosses that’s not worth either buying or selling right now…

Two Weak Currencies, One Horrible Currency Cross

What you have here is a classic example of pairing a weak currency with another equally weak currency, so we have a weak/weak-trading scenario.

The Swiss National Bank has already demonstrated they’re willing to intervene periodically to keep the Swiss franc’s value low.

Meanwhile, the British pound can’t do one thing right. Check out the chart below.

The Dollar Falls and the Pound Falls Even Harder!

Why the Dollar Can Fall & So Can the Pound!

Right now, the British pound is one of the few financial instruments in the world falling at an even faster rate than the dollar.

That’s why the GBP/USD pair is dropping on the chart even in spite of a falling buck that has been pushing up nearly every other currency.

In other words, you can’t find a much weaker currency than the British pound. Usually, I’d be willing to short the pound in a currency cross at times like these, but there’s an extra dilemma at work here.

As I mentioned, the Swiss National Bank has already been intervening in the currency market earlier this year to artificially manipulate the Swiss franc’s value. They’ve been selling francs and buying up euros mainly, but also some dollars and some pounds to push down the franc’s value, according to the central bank website.

So what happens if the Swiss National Bank wants to weaken the Swiss franc again and decide to buy even more pounds (GBP) this time? It would boost up the GBP/CHF pair.

That’s my problem with shorting the pair right now. You run the risk of central bank intervention and being on the wrong side of that intervention. Check out the GBP/CHF chart below.

If the Swiss National Bank Intervenes, You’ll Don’t Want to Hold the GBP/CHF

When in Doubt…Pass it Up, and Move on to Another Pair!

You never want to trade weak/weak scenarios like this, or strong/strong scenarios for that matter. They’ll range-trade indefinitely and won’t earn a pip in profits.

But in this case, there’s an extra fundamental risk in shorting this pair. Even though the GBP/CHF is in a downtrend, the lower it goes…the more likely the Swiss National Bank is to intervene and take the pair higher.

Yet I still don’t want to buy it either because I’d be buying a fundamentally weak currency when I could buy something stronger out there. In fact, almost any other choice would be a stronger buy candidate than the pound right now!

Therein lies the “catch 22” in owning the GBP/CHF currency cross pair right now. That’s why I wouldn’t touch it with a 10-foot pole.

Instead, I’d rather be long EUR/CHF on huge dips down because at least that way I might have the central bank on my side…and euro has been much stronger than pound…we only have to look so far as the EUR/GBP pair to see that.

Happy Trading,
Sean Hyman, aka Professor FX

EDITOR’S NOTE: This is the type of in-depth analysis Sean gives on every single currency cross (non-dollar) currency pair in his service, Currency Cross Trader. Every week, he emails his subscribers timely alerts to recommend which currency pairs to buy, sell and hold for maximum profits in the Forex market. For now, this service is only available to our FX Elite members. But I’ll keep you posted here in FX University if it becomes available again.

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