The Pairs to Range Trade This Week - USD/CHF, EUR/CHF, CAD/JPY
Trading Tip A long-term rising trendline is coming into conflict with a medium-term downtrend. While this will necessitate a decision as to direction on the markets part, the width of the range and the rank of the economic indicators scheduled for the period should keep USDCHF congestion bound at least for the first half of the coming week. For the recommended range and strategy criteria, entry on both sides is a sticky issue, but risk/reward and the time frames for exits should keep possible losses down. If the range does hold for most of the week, open positions should be taken off (or new entries should not be taken) on Friday. US growth could stoke volatility regardless of how it prints as policy makers and international investors await evidence of an impending recession or rebound from the worlds largest economy. US The US faces a mixed economic calendar next week, with the release of Consumer Confidence potentially starting the weak off on a sour note. The sentiment figure is anticipated to fall back in April as gasoline prices remain high. The next day, durable goods are forecasted to rebound as the US consumer proves their resilience. However, US dollar trade may be subdued ahead of first quarter GDP. Growth is estimated to have eased back to 1.8 percent from 2.5 percent, which may only exacerbate concerns that the crunch of the housing sector has spread to the rest of the economy. Starting out the following week will be Personal Income, and although the release is predicted to hold at a solid 0.5 percent, price action may continue to ride the sentiment of the GDP figure. Switzerland While there are only three releases scheduled this week, the calendar is relatively full for Switzerland. The trade balance is expected to ease back to 1.11 billion francs, but with Swissie at low levels compared to the Euro, exports to the Euro-zone may see an unexpected boost. The same day, the UBS consumption indicator will likely show resilient consumption, similar to the KOF leading indicator later in the week. KOF is anticipated to hit a six-month high of 2.00, as the sturdy Swiss economy wears on with the help of robust domestic demand and strong export growth. Given the resilience of the Swiss economy, one of the healthiest and most stable in the developed world, traders may start to price in the potential of continuous quarterly rate hikes throughout the rest of the year.
Trading Tip For some time, EURCHF has appreciated on interest rate expectations. Since the SNB schedules its rate decision on a quarterly basis, the ECB policy group was expected to handily outpace the Swiss and widen the rate differential for a rather reliable carry. However, after ECB President Jean-Claude Trichets failure to revive strong vigilance at the last policy announcement, both central banks are now looking at the same time table for their next rate hike. This alone should sap momentum from the pair. Furthermore, EURCHF ranges are historically small, so if rate differentials are not a volatility driver in the future, the pair may consolidate and better project direction or range conditions. Euro Zone German sentiment figures will start out next week with the IFO survey anticipated to show all of its components improving, though the business climate index will likely garner the most attention. The next day, GfK consumer confidence is forecasted to reflect broad optimism in Germany, despite prospects of rising interest rates as tight labor markets keep households content. The following Monday, both M3 money supply and the April CPI estimate could show that inflation pressures continue to build in the Euro-zone. As a result, markets will continue to expect that the European Central Bank will raise their benchmark in June. However, if the figures come in softer than expected, Euro may lose its bid as traders consider the potential of steady rates for the next few months. Switzerland While there are only three releases scheduled this week, the calendar is relatively full for Switzerland. The trade balance is expected to ease back to 1.11 billion francs, but with Swissie at low levels compared to the Euro, exports to the Euro-zone may see an unexpected boost. The same day, the UBS consumption indicator will likely show resilient consumption, similar to the KOF leading indicator later in the week. KOF is anticipated to hit a six-month high of 2.00, as the sturdy Swiss economy wears on with the help of robust domestic demand and strong export growth. Given the resilience of the Swiss economy, one of the healthiest and most stable in the developed world, traders may start to price in the potential of continuous quarterly rate hikes throughout the rest of the year.
Trading Tip The CADJPY has re-entered the exact range we saw back in September and October of 2006, with 104.00 and 106.00 holding strong support and resistance. Nevertheless, history does not always serve as a perfect guide, so caution should be used when entering the trade by looking for a test of resistance with a subsequent close below 106.00 thereafter. Stops on a short entry are a little wide, since CADJPY reached about 30 points above the top of the range back in September. Traders should also pay attention to the Japanese inflation data, as a sharp jump higher or lower could create major volatility for the pair. Canada The Canadian calendar holds only a few indicators through the coming week, and each is questionable in its ability to put the market in motion. The leading indicators index is the first indicator to cross the wires on Tuesday. Historically, the indicator is largely ignored. This time around, its lack of impact is almost guaranteed since a Bank of Canada interest rate decision is due only half an hour later. As has been the case since May of last year, the Canadian monetary policy authority is expected to leave rates untouched, but a rebound in inflation and strong spending and employment numbers offer a low probability of a surprise. The only other indicator of note will not print until the following Monday. February Gross Domestic Product is expected to rise modestly, an outlook that opens itself to big surprises and projections an improving economy at the same time. Japan This are a considerable number of economic releases scheduled to print next week. However, the top movers are all centered on one day. Though there are a few lower class reports looking for attention early in the week, they are all supplementary reads to bigger indicators due later. The real action begins Thursday evening GMT time (which is Friday morning in Tokyo). Employment, spending inflation and factory activity indicators are all due within 20 minutes of each other. The unemployment rate for March will likely draw little attention, since it has held consistently low for months and has yet to recharge growth. Retail sales and household spending on the other hand will be essential to fundamental traders outlooks. Consumers have yet to accelerate growth and inflation to levels the central bank deems necessary to consider more frequent rate hikes. On the same reasoning, the consumer inflation reads should generate little interest. On the other hand, the BoJ rate decision (which has no official time) still presents sizable event risk.