GBPCHF - Extension higher favoured.

GBPCHF has broken above the pivotal level of 1.7490 as mentioned in my prior post. Given the shallow retrace to 1.7120 and swift rejection lower seen last Thursday I see a long position as a good diversification of being short EURGBP. This ties in with a medium term view that EURCHF is headed higher, although I would not rule out a swift return to 1.4800 in EURCHF before substantial strength higher. Fundamentally I see the reality of the world economy as being much the same as it was back in 2007 when the mayhem began. US consumers, the linchpin of the global economy, are still heavily leveraged. Given that the US consumer is not coming back anytime soon this implies that US GDP will do the same and with it earnings expectations for the S&P500 are probably a tad too optimistic . In this scenario the tug of war between two currencies like the Swiss Franc and Sterling just turns into a technical arguement as to which one is the most overextended on the downside given their dependence on finance. My opinion is clearly in favour of Sterling although this may begin to change if and when I see EURGBP at levels below .8223 and GBPCHF over 1.9000. In the meantime I favour extensions in both currency pairs, although cable may be capped around 1.6685. In terms of targets for GBPCHF please refer to my prior post. A push back below 1.7120 however warns of an end to strength and it would be wise to take a step back and re-assess.