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Carry Trade Opportunity with SNB’s Help

September 7, 2011 by Andriy Moraru

As you all probably know already, the Swiss National Bank (country’s central bank) has pegged the Swiss franc’s Forex rate to the euro at about 1.20. The Swiss financial authorities got tired with their inability to weaken the currency using less drastic measures (classical currency interventions) and have just fixed the EUR/CHF rate slightly above the 1.2000 rate. For the past 40 hours it’s been trading in a tight range between 1.2010 and 1.2080.

Now to the trading plan. The SNB’s interest rate is between 0% and 0.25%, while the one of the ECB (European Central Bank) is 1.50%. This means that you’ll be paid a positive overnight interest (swap) on long EUR/CHF positions. For example, with InstaForex it’s 0.49 pip per day, and with EXNESS it’s 0.47 pip. While that doesn’t sound like a lot of money (about $5.70 per standard lot per day at the current USD/CHF rate), I consider such a carry trade position to be almost risk-free. The SNB is committed to keep the Swiss franc at least as low as 1.20 vs. the euro, but still considers that level too high for its currency, which makes the most probable direction for the EUR/CHF Forex pair, if it breaks out of the range, bullish.

With the positive expectations regarding the ECB further rate increases and the neutral sentiment for the Swiss interest rates, there’s really little that can go wrong here. The only thing that I’m afraid of with this “sure-fire” trade is that it sounds too good to be true, so I’d really like to hear the counterarguments to my speculations.

While more than a third of the blog’s readers considers carry trade a bad trading strategy, I hope this info will be useful to the rest of you.

EUR/CHF H1 Chart as of 2011-09-07

If you have some questions about this carry trade opportunity or wish to offer your own carry trade strategy for the current Forex market conditions, please feel free to reply using the form below.

2 Responses to “Carry Trade Opportunity with SNB’s Help”

  1. Bala

    Aussie dollar is getting better, should invest on this one

    Reply

    admin Reply:

    AUD carry trade? Against what currency?

    Reply

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