In most cases, I would argue strong fundamentals will be also seen in price action and therefore technical indicators. Therefore, saying techni-fundamental may be redundant but this article will describe the fundamental reason and look for technicals to provide the timing.

Beginning with the fundamentals, two weeks ago the Swiss National Bank (SNB) announced that they would be using "quantitative easing" to help the Swiss economy. Quantitative easing is the process of increasing money supply, in most cases, by simply printing un-backed currency. Quantitative easing could also be called, measured weakening. The increase of supply in a measurable and consistent way weakens the value of the currency while the intent is to relax tight credit and improve exports due to the weakened currency, all of which in theory stimulates economic growth.

A commonly known correlation exists between the British pound and oil. British Petroleum accounts for nearly 10% of the Gross Domestic Product (GDP) of Great Britain. When oil prices rise, in turn British Petroleum does better and consequently so does the GDP and economy of Great Britain. Oil has been rising over the past two months and with the concern of inflation looming, oil's assent could be more dramatic.

Combining both the potential of a stronger pound with higher oil prices and the potential of a weaker franc due to quantitative easing, the GBP/CHF trade has fundamentals supporting a bullish move.

The technicals, or timing, of the fundamentals is fairly straight forward. The pair has consolidated as the SNB announced their change in monetary policy. When the consolidation ends, price action could run for 1,500 pips and potentially more.

Though this is not a text book wedge, the price action has consolidated in a wedge-time pattern. When a wedge occurs, the breakout of the wedge usually runs the distance of the base of the wedge. The base of the wedge is often times calculated as the second bounce in the consolidation. The base here measures 1,500 pips. If the pair was to break above resistance in the next week, the target would be approximately 1.80 (see Figure 1). Our target price coincides with a previous, multi-year down trend as well, adding strength to the target as potential resistance. Additional confirmation can be obtained if the stochastics turns positive as the price action breaks through the resistance trend line. A support has been established near 1.5900. If a stop loss is placed near 1.5900 at the time of a breakout, the risk-to-reward of this set up is nearly 2.5 to 1.

Figure 1 -- Wedge Formation with a Target of 1,500 Pips.

If the breakout occurs, a stop could be trailed as price rose and as higher near term support levels were created. This trade could be exacted using the spot market or by using the futures by buying the pound futures (/6b) and selling the franc futures(/6s).

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