Yet again, we have seen another aggressive swing in risk appetite. However, this particularly drive seems to have found a willing participant in the US dollar.
[B][/B][B]Why Would USDCHF Hold a Range?[/B]
· [B][U]Levels to Watch:[/U][/B]
[B]-Range Top: 1.0950 (Fib, SMA, Range High)[/B]
[B]-Range Bottom: 1.0590 (Fib, Range Low) [/B]
· Fundamentals are a tricky business with USDCHF. This pair is unique in that it is comprised of two currencies that were formerly considered to be top safe-havens but are now seeing this market role fade. Nonetheless, risk appetite trend will still factor in through correlations to other notable pairs. Yet, so too will scheduled event risk and larger scale considerations (like the Swiss government forfeiting its banking secrecy efforts) complicate the picture.
[B][/B]
· For nearly two-and-a-half months, USDCHF has been restricted to a 400 to 450 point range. The channel between 1.10 and 1.06 has seen many swings over this period; but its [progress as of late has been choppy](http://www.dailyfx.com/story/bio2/Euro_Consolidates__1_4330_Defines_the_1250691041431.html). There is a short-term bearish bias developing in the past few weeks; which puts additional pressure on a possible breakout scenario.
[B][I]Suggested Strategy[/I][/B]
[B][/B]
· [B][U]Long[/U][/B][B]: Entry orders should meet the general range low at 1.0630.[/B]
· [B][U]Stop[/U][/B][B]: A test of the August 3rd low is possible, so our stop will be set to 1.545 to cover this low. To secure profit, move the stop on the second lot to breakeven when the first target hits.[/B]
· [B][U]Target[/U][/B][B]: The first objective equals risk (85) at 1.0715 and the second[/B][B] target is set to 1.0800. [/B]
[B]Trading Tip[/B] – Yet again, we have seen another aggressive swing in risk appetite. However, this particularly drive seems to have found a willing participant in the US dollar. While USDCHF has its links to risk appetite; the pair has been relatively stable through the previous two legs of heightened activity Monday and Tuesday. This time around, a more than 150-point plunge from the day’s high to low shows a unique burst of direction while the markets have been generally bearingless for the past month. What range traders should ask is whether this move can maintain its momentum and force a breakout. After such a substantial move so far, it is unlikely that we will see a break today. Therefore, we look over the next 24 hours (the longer it takes to produce a breakout when we are near a major technical boundary, the more likely it is that a reversal will develop); and there are few foreseeable events that could rally the entire market to produce a major breakout for either the risk or the US dollar. Nonetheless, there is still significant risk in a range setup. News that the Swiss government would release information on more than 4,000 US client accounts has threatened its renowned banking secrecy reputation. We could also see high volatility encourage false breaks. Therefore, we will follow the strategy and remove all open orders by Friday.
[B]Event Risk for the US and Switzerland[/B]
[B]US[/B] – Though the benchmark US currency has been extraordinarily volatile over the past few days, the fundamental fuel for this move has been otherwise lacking. For the rest of this week, the economic offerings on tap will likely leave traders wanting. The housing sector will remain in focus with existing home sales for July and second quarter mortgage delinquency rates. Though these indicators can provide a leading and accurate sense of consumer and credit health, there impact on price action has been severely diminished in recent days. Friday’s Jackson Hole Symposium could be a wild card event. The topic for discussion is not widely known; but given past themes, it will likely be prescient and perhaps telling of policy going forward. After the weekend, event risk picks up once again. The second reading of 2Q GDP, durable goods orders, new home sales and consumer confidence are just a few of the readings due.
[B]Switzerland[/B] – There are few indicators - or even broader market drivers for that matter - that can spur the Swiss franc into a new trend. Scheduled event riskis particularly flimsy when it comes to moving the currency. However, there is no lack of notable indicators on the docket. Considering its wide breadth, it could factor into growth recovery and interest rate forecasts – considerations that are responsible for long-term trend. This week, both the July trade balance and August ZEW investor sentiment survey will cover exogenous factors. Trade to the Euro Zone will be particularly noteworthy as an expected recovery in Switzerland’s largest trade partner will define the Swiss rebound as well. After the weekend, the focus is turned back onto domestic factors. The UBS Consumption Indicator and employment gauge for the second quarter will gauge the pace of internal growth. As for risk appetite, the correlation to sentiment is starting to fade thanks to the SNB’s intervention efforts and attacks on the renowned secrecy of the financial system.
[B]Data for August 20 – August 27[/B]
[B][/B]
[B]Data for August 20 – August 27[/B]
[B]Date (GMT)[/B]
[B]US Economic Data[/B]
[B][/B]
[B]Date (GMT)[/B]
[B]Swiss Economic Data[/B]
Aug 20
Mortgage Delinquencies (2Q)
[B][/B]
Aug 20
Trade Balance (JUL)
Aug 21
Existing Home Sales (JUL)
[B][/B]
Aug 20
ZEW Survey (AUG)
Aug 25
Consumer Confidence (AUG)
[B][/B]
Aug 25
UBS Consumption Indicator (JUL)
Aug 26
Durable Goods Orders (JUL)
[B][/B]
Aug 25
Employment Level (2Q)
[I]Written by: John Kicklighter, Currency Strategist for DailyFX.com.
Questions? Comments? Please send them to <[email protected]>.[/I]