We have seen the strong advance in risk appetite that dominated through the first half of this week finally tempered through this morning’s session. However, we should not rest on our laurels and set up a range trade in a pair that could potentially be catalyzed into a breakout through another shift in sentiment.
[B]Why Would USDCHF Hold a Range?
• [U] Levels to Watch:[/U]
-Range Top: 1.0950 (Range, Fib, Trend, SMA)
-Range Bottom: 1.0700 (Trend, Double Bottom)[/B]
• It is clear through the trend in stocks, fixed income and currencies that risk appetite was in control of market sentiment through the first half of this week. However, we have seen this driver decelerate today; and in any case, USDCHF wasn’t responding to the imbalance with an anti-dollar move. For a pair comprised to two risk-averse currencies, sentiment has to hit an extreme for a clear trend. [US earnings could tip the scales](http://www.dailyfx.com/story/special_report/special_reports/Earnings_Season_Looks_toTake_Control_1247712984766.html); but event risk poses little threat.
• Congestion has put curbs in for USDCHF since before the beginning of June. The boundaries to this formation have not always been the clearest however. Resistance has the medium-term bias behind it; but the hard ceiling come from a long-term Fib / range high at 1.0950. Support is less distinct, but a rising trend backs up a double bottom at 1.07
• [U][B]Long[/B][/U][B]: Entry orders will be placed at 1.0720, which offers a buffer over today’s low.
• [U]Stop[/U]: An initial stop of 1.0660 does not cover the entire range, but is necessary for risk/reward. To secure profit, move the stop on the second lot to breakeven when the first target hits.
• [U]Target[/U]: The first objective equals risk (60) at 1.0780 and the second target is set to 1.0840. [/B]
[B]Trading Tip[/B] – [B]We have seen the strong advance in risk appetite that dominated through the first half of this week finally tempered through this morning’s session. However, we should not rest on our laurels and set up a range trade in a pair that could potentially be catalyzed into a breakout through another shift in sentiment. Such concerns are relatively low for USDCHF. While equities and yen crosses were rallying through three consecutive sessions, this pair was confined to congestion with little mind towards developing a trend that followed the lines that sentiment was laying out. It is true that both currencies are generally considered safe havens and each has its own unique fundamental issues; but it is more realistic to refer to EURUSD when taking stock of its pace. These two typically move in tandem when there isn’t a clear yield bias to break the correlation. Fundamentally, the Euro Zone is seeing the same barriers to growth and higher yields as the US while financial stability is threatened by domestic troubles (CIT and deficits in the US, Eastern European banks and undervalued recession in Europe). From a technical perspective, both USDCHF and EURUSD have a clear range with a medium-term anti-dollar bias to take note of. We could have essentially chosen either pair; but the trade setup and harbor for risk trends was more appealing through USDCHF. Our entry is relatively aggressive; but necessary to maintaining a reasonable risk/reward. As the range is narrow, we need to set targets relatively close. We will cancel all open orders by Friday’s close.[/B]
[B]Event Risk for US and Switzerland[/B]
[B]US – [/B]For the dollar’s part, this past week’s primary fundamental driver has been investor sentiment. Without the desperate need for liquidity, the concept of safe haven has changed. For the dollar, the ballooning budget deficits and unstable economic recovery (though the US recovery looks to be more certain and steady than most of its major counterparts) have eroded its role as a safety currency. Earnings season state-side promises to be a significant market driver owing to its contributions to growth forecasts and the health of financial markets. Bank and financial firms’ numbers will be particularly influential in this sense; and many big names are due to report on Friday and at the start of next week. As for the economic calendar, data is otherwise reserved. For the remainder of this week, only the housing starts figure shows promise as a leading report for the later released existing and new home sales data as well as the sector’s inflation gauge.[B]
Switzerland – [/B]Switzerland and its currency are dealing with larger, underlying issues. In addition to a significant recession, the SNB continues its fight against appreciation in its currency and thereby protect its vital export interests. This endeavor only intensifies the efforts made by other major economies to circumvent the Swiss’s rules for banking privacy in an effort to indentify tax evaders. The banking industry is vital to the economy; and the loss of its famed privacy could dramatically alter the world’s view of the economy as a harbor for capital and safe haven in times of uncertainty. These are issues to be played out for weeks and months on the global forum though. Immediate event risk is relatively light. Data on trade, housing sector health and money growth is grouped together next week.