MUFG trade fo the week: Sell GBP/USD again

Currency investors should consider establishing GBP/USD short positions around current levels. The trade of the week from MUFG is to sell cable with a spot reference of 1.1100, a target of 1.0450 and a stop at 1.1450.

“We are adding a new short cable trade idea and maintaining a short NOK/CHF
CHF

The Swiss franc or Confoederatio Helvetica (CHF) is the official currency of Switzerland and Liechtenstein. The CHF is currently the seventh most-traded currency in the world and is treated as a significant reserve currency.Unlike other currencies in the world’s leading economies, the CHF was notable for its currency peg with the euro (EUR). Started in 2011, the Swiss National Bank (SNB) pegged the CHF to the EUR at a minimum exchange of 1.2.At the time, the peg was justified due to the strong CHF in tandem with a weak EUR due to Eurozone debt.Switzerland was interested in lowering its currency value in what was already one of Europe’s most expensive countries. SNB Abolishes CHF Currency PegThis paved the way for the eventual removal of the EUR/CHF currency peg, which convulsed foreign exchange markets on January 15, 2015.At the time, the SNB’s unexpected decision caused the CHF to abruptly rise by almost 30 percent in value against most major currencies. This lasted for nearly 45 minutes during which there was virtually no liquidity in the currency.Consequently, this made it impossible to exit trades or for most brokerages to reconcile their exposures. As a result, stops were not honored and most traders saw their accounts totally wiped out. This also led to enhanced losses in the absence of negative balance protection, a particular vulnerability at this time for retail traders, which resulted in massive losses.Since the SNB Crisis, the demand for negative balance protection has skyrocketed and become nearly ubiquitous.Moreover, there has also been a push for greater awareness of the levels of risk when trading currencies that are the object of a stated peg to another currency by its central bank.

The Swiss franc or Confoederatio Helvetica (CHF) is the official currency of Switzerland and Liechtenstein. The CHF is currently the seventh most-traded currency in the world and is treated as a significant reserve currency.Unlike other currencies in the world’s leading economies, the CHF was notable for its currency peg with the euro (EUR). Started in 2011, the Swiss National Bank (SNB) pegged the CHF to the EUR at a minimum exchange of 1.2.At the time, the peg was justified due to the strong CHF in tandem with a weak EUR due to Eurozone debt.Switzerland was interested in lowering its currency value in what was already one of Europe’s most expensive countries. SNB Abolishes CHF Currency PegThis paved the way for the eventual removal of the EUR/CHF currency peg, which convulsed foreign exchange markets on January 15, 2015.At the time, the SNB’s unexpected decision caused the CHF to abruptly rise by almost 30 percent in value against most major currencies. This lasted for nearly 45 minutes during which there was virtually no liquidity in the currency.Consequently, this made it impossible to exit trades or for most brokerages to reconcile their exposures. As a result, stops were not honored and most traders saw their accounts totally wiped out. This also led to enhanced losses in the absence of negative balance protection, a particular vulnerability at this time for retail traders, which resulted in massive losses.Since the SNB Crisis, the demand for negative balance protection has skyrocketed and become nearly ubiquitous.Moreover, there has also been a push for greater awareness of the levels of risk when trading currencies that are the object of a stated peg to another currency by its central bank.
Read this Term trade idea. We established [a cable short] trade last week and hit our profit target far quicker than we anticipated. We have since rebounded of course on the back of the intervention by the BOE to bring order to the Gilts market,” they write.