Stalking USDCHF Above Parity
Well 2014 has wrapped up and is all but history. We’re a week into 2015, which means we are back at our trading desks looking for that next stand out trade to get our trading year underway.
The US Dollar looks as though it never had a break as it has continued into 2015 where it left off with strong moves to the upside. This strength in the US Dollar has pushed the FX cross rate of USDCHF above the Parity level. Now some of you will be asking, what is Parity? Parity in an FX pair is when ONE currency is equal to another country’s currency, so in the case of USDCHF Parity would mean that ONE US Dollar is exactly equal to ONE Swiss Franc. Got it?
The next question in your mind might be “why is this significant and what does it mean for my trading?” This Parity level is significant because for traders all around the world the number 1.0000 on any currency becomes a very strong point of memory. Any point of memory on a chart will create a strong level of support and resistance as traders will use these levels as protection for stop losses and for gaining entries above or below the level depending on whether they are bullish or bearish that product. We have marked in the Parity level on the USDCHF monthly chart below to illustrate how this level has been a significant price support and resistance area in the past. As you can see there have been some really key touches on Parity in the past.
So, how are we going to use this Parity level to our benefit? Now that price is above the Parity level on USDCHF we will look to use this level as a buying opportunity if price pulls back to this level and finds likely support. If you take a look at the USDCHF Daily chart below the ideal setup would be is if price now pulled back to the Parity level which would also coincide with what we call the buy zone (between the 10 and 20 period moving averages) and then for a small bullish candle to close above the Parity level which will provide us with our precise point of entry. The entry will be 1 pip above that candle’s high, with a stop below the swing low. Lets list out a few other technical factors that will be in our favour to take a trade long if we get the trade setup: Price is in an uptrend, we have convergence across the MACD and RSI indicators, the 10, 20, 50 and 200 period moving averages are all fanning in the correct order and we won’t have any support or resistance level in the way of our target, instead we will have the support level of Parity protecting our stop loss.
Be sure to keep an eye out for USDCHF and any chart for that matter which is trading around a Parity level as it can present you with some really great trading opportunities.
Happy Trading!
Regards,
The TWP Team
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