Swiss Franc stabilizes against Japanese Yen despite interest rate cut. Focus on central bank policies and carry trade potential, as the Yen shows weakness.

• The Swiss franc stabilized a bit against the Japanese yen during the session on Monday, which is a bit of a surprise, but this is a market that you absolutely must be paying attention to.
• This is mainly due to the fact that both are considered to be funding currencies, and sometimes when a market doesn’t act the way you think it should, that is a huge glaring signal that you should be paying attention to.

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Central bank policy

Keep in mind that the Swiss just cut interest rates, and that of course has a detrimental influence on the Swiss franc. However, it has stabilized a bit against the Japanese yen, showing just how lonely the Japanese yen is as far as traders are concerned right now. Ultimately, this is a scenario where a lot of people are going to be paying attention to the potential of a so-called “carry trade”, which of course pays you to hang on to a currency pair at the end of each day. Quite frankly, even though the Swiss franc has seen a cut in interest rates, the fact that the Japanese yen can’t capitalize on this fact tells me that the Japanese yen is in serious trouble.

I believe at this point in time the slight interest rate differential probably favors the Swiss franc anyway, but what I look at this chart for is a bit of a determination as to which currency I want to be short of the most right now. Judging from the way this chart is behaving, it is most certainly the Japanese yen. It’s not to say that I won’t short the Swiss franc against other currencies, just that I’m probably going to be much more aggressive in the “/JPY” currency pairs out there at the moment. In fact, I believe this is a situation where I will short both yen denominated pairs and franc denominated ones. Quite frankly, I have no interest in buying either one of these currencies, unless of course it is against the other one. In that case, I would get long of this pair but I also recognize that it will more likely than not be a bit of a grind so you must be prepared for that.

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