AUDCHF a Good Pair to Position for the Market's Next Phase

[B]My picks:[/B] Pending Short AUDCHF on Breakout
[B]Expertise:[/B] Combining Money Management with Fundamental and Technical Analysis
[B]Average Time Frame of Trades:[/B] 3 days - 1 week

We are heading into the end of a volatile week that has not provided a bead on market direction or general sentiment. Taking up position on something like a yen cross at this point is essentially a crap shoot as it is not clear what would catalyze the underlying market themes heading into next week. Therefore, I am looking for a setup that is building pressure and on the cusp of a new trend. Fullfulling my requirements is AUDCHF. This pair has a clear correlation to risk as the Australian dollar holds the top yield among the majors and is the only economy in the group to have expanded through the first quarter. In contrast, the Swiss economy is suffering recession (made perhaps worse by Europe’s stalemate in further boosting stimulus), a weakened financial position and now an assualt on their international status as a private banking economy. Trying to predict what may be the catalyst for such a move is only slightly less daunting than choosing direction itself. Updates on efforts to force Swiss banks to release account activity, general sentiment or using the UK 2Q GDP number as a proxy for global growth are all candidates.

For AUDCHF, the ultimate driver for a reversal or breakout is likely to be indirect. Nonetheless, this pair’s sensitivity to market-wide sentiment will likely make a trend clear and true. While a rebound from this triple bottom formation is the most likely outcome from recent price action, that would likely entail entry before the weekend (which invites risk of a breakout against me during the low liquidity period); and there is no telling the pace the rebound may take. Instead, my interest is in a bearish breakout. I will look for my signal come the open of Asian trade Monday morning and consider a confirmed move below 0.84 as an entry signal. A stop above today’s high will be necessary; but a first target equivalent to this risk is reasonable. To find respectable follow through and therefore a significant second objective; we will need to see risk appetite falling (therefore we would expect equities to tumble while the yen and perhaps dollar rise). If this is not the case, I will keep my second target relatively close while protecting profits and trailing stops.