Heightened FX Volatility Increases The Appeal Of The CHFJPY Range

After a volatile start to the New Year, there are few currency pairs that are still looking at strong ranges. What’s more, of those that are making the grade, heightened volatility in risk trends and growing interest in the FOMC’s next rate decision are threatening breakouts. The only range trade that seems to be immunized against both risk trends and dollar interest is CHFJPY. While the Japanese yen has had a heightened correlation to other, risky assets like equities and commodities, the carry trade and safe haven status of the Swiss franc will effectively dampen the these fundamental influences.

[B]Trading Tip[/B] – After a volatile start to the New Year, there are few currency pairs that are still looking at strong ranges. What’s more, of those that are making the grade, heightened volatility in risk trends and growing interest in the FOMC’s next rate decision are threatening breakouts. The only range trade that seems to be immunized against both risk trends and dollar interest is CHFJPY. While the Japanese yen has had a heightened correlation to other, risky assets like equities and commodities, the carry trade and safe haven status of the Swiss franc will effectively dampen the these fundamental influences. And, as for the technical appeal of the pair’s range trade, there are few pairs that can lay claim to the same sort of consistency CHFJPY has seen. Our recommended strategy for this range trade is isolated to a long position as support has stood for eight weeks with multiple tests. The entry is somewhat aggressive; yet for a wide stop, this is necessary. We will cancel this trade should spot hit 98.50 before we are entered or if the trade is still pending by January 14.
[B]Event Risk Switzerland and Japan[/B]
[B]Switzerland[/B] – The economic calendar is virtually out of commission until the end of the month. The only piece of event risk crossing the wires over the coming week comes in the form of the unemployment rate for December. According to economists’ forecasts, the jobless rate is expected to pick up once again on an unadjusted basis, but hold steady at 2.6 percent when seasonally adjusted. And, while employment has been and remains a key component to consumer confidence, wealth, and therefore spending; this indicator has been overlooked for at least a year. Looking out for potential exogenous risk, the franc may find some interest as a safe haven asset. If equity, commodity and bond markets continue to see elevated levels of volatility, the demand for a shelter from the dramatic moves may funnel capital to Switzerland.

[B]Japan[/B] – While the fundamental listings for the Japanese calendar over the coming week are light, the drought will not be a severe as with the Swiss docket. From the multitude of second and third tier releases, a few data points will stand out with some market moving potential. Thursday’s preliminary Leading Economic composite index for November has garnered greater interest in recent months after dropping to its worst reading in nearly a decade. If growth forecasts continue to struggle, it may begin to encourage a discussion of possible rate cuts. On the following day, the man-on-the-street Eco Watchers survey will measure sentiment through December. Consumer confidence is at multi-year lows, and if this more spending sensitive report follows suit, the impact on the yen may be harsh. Outside the confines of the economic docket, the yen’s association to risk trends could sustain its growing correlation to equity markets, for extra volatility.

                                     [B]Data for January 6 – January 14[/B]
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                                   [B]Data for January 6 – January 14[/B]
                                                     [B]Date[/B]
                                   [B]Swiss Economic Data[/B]
                                   [B][/B]
                                   [B]Date[/B]
                                   [B]Japanese Economic Data[/B]
                                                     Jan 7
                                   Unemployment Rate (DEC)
                                   
                                   Jan 6
                                   Monetary Base (DEC)
                                                     
                                   
                                   
                                   Jan 10
                                   Leading Economic Index (NOV P)
                                                     
                                   
                                   
                                   Jan 11
                                   Eco Watchers Survey: Outlook (DEC)