Expectations for a return of liquidity to usher the currency market to a new trend in sentiment and yield appetite have so far fallen flat. However, an excess of volatility and gradual bias in major asset classes mean conditions could change on a dime.
How Stable is the CHFJPY Range?
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· [B][U]Levels to Watch:[/U][/B]
[B]-Range Top: 88.50 (Channel, Fib)[/B]
[B]-Range Bottom: 86.75 (Fib, Pivot)[/B]
· The return of liquidity has amplified volatility; but has yet to provide clear direction for risk trends. As such, the market is still awaiting a definitive trend in general sentiment that defines the next period of broad market trend. In the meantime, CHFJPY is among one of the few pairs that can temper the directionless volatility. However, scheduled event risk may present a threat of its own. Reports like the BSI survey and SNB rate decision hold influence.
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· CHFJPY has established a considerable congestion pattern for the past six months in a gradual rising trend channel. However, recent price action has seen much more confined extremes. We are now at the top of a descending channel that has developed for a month and now coincides with a 50% Fib of the Aug 7th to Sep 2nd decline.
[B][I]Suggested Strategy[/I][/B]
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· [B][U]Short[/U][/B][B]: An entry of 88.40 is well below today’s swing high.[/B]
· [B][U]Stop[/U][/B][B]: A stop of 88.80 is meant only to secure an errant reversal to hold with the channel. 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 [/B][B]is twice the initial risk at 87.60. The second target is 86.95. [/B]
[B]Trading Tip[/B] – Expectations for a return of liquidity to usher the currency market to a new trend in sentiment and yield appetite have so far fallen flat. However, an excess of volatility and gradual bias in major asset classes mean conditions could change on a dime. There is excess risk in pursuing ranges in the majors (half are on pace to set a new trend) and it is equally dangerous to position with most yen crosses. However, one pairing with the Japanese currency that could weather chop in the down time between established trends is CHFJPY. Like a few of its peers, this pair is at the top of a descending, channel formation. However, unlike CADJPY and NZDJPY, the franc-denominated pair is not at one of the extremes of the risk spectrum. Both are funding currencies, have significant economic troubles and are struggling with their place in the global financial scene. On the other hand, this does not mean that this pair is permanently range-bound. A true trend in risk appetite will no doubt set this pair in motion. More tangible is the threat of scheduled event risk. From Switzerland, second quarter factory activity and the SNB rate decision could readily supply volatility. For Japan, the BoJ decision and BSI survey are top concerns. Our strategy looks to cover the trend channel for the past six weeks and nothing more. This setup should trigger quickly given spot; so we will cancel any open orders within 24 hours.
Event Risk for Switzerland and Japan
Switzerland – It isn’t often that Swiss data can elicit a significant response from the franc. However, the events scheduled for release over the coming week may have the necessary influence to drive the currency to volatility, breakout and even trend. Of primary concern is the SNB rate decision scheduled next Thursday. Just one step away from a zero interest rate policy, policy makers aren’t likely to lower their benchmark rate any further; but economic hardship will certainly keep the dovish pressure on. Commentary and/or unorthodox policy, on the other hand, can catch the market off guard. The central bank has been very vocal about its intervention (trying to ‘jawbone’ the exchange rate along with its direct influence) and the outlook has maintained a very distinct, bearish bias. Other notable indicators will be the ZEW survey, retail sales and 2Q factory activity gauge. The latter report will be a lead in for GDP.
Japan – The economic docket will fill out for fundamental yen traders next week; but the data is still likely to be overshadowed by the influences of broader risk appetite. Still the top funding currency through the progressive return of yield demand, the yen will take with any uniform moves in the speculative markets. Finding catalysts for a definitive shift in sentiment though is difficult. There are few specific indicators that can single handedly carry a tectonic shift in investor activity. As for scheduled event risk, the docket will bring with it a few releases good for perhaps for short-term volatility. The final reading of the GDP data will likely bring with it few notable revisions and the consumer confidence survey has limited influence to begin with. The real sparks come with the 3Q BSI survey of business health and BoJ rate decision.
[B]Data for September 10 – September 17[/B]
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[B]Data for September 10 – September 17[/B]
[B]Date (GMT)[/B]
[B]Swiss Economic Data[/B]
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[B]Date (GMT)[/B]
[B]Japanese Economic Data[/B]
Sep 15
Industrial Production (2Q)
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Sep 10
GDP (2Q F)
Sep 16
Retail Sales (JUL)
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Sep 11
Consumer Confidence (AUG)
Sep 16
ZEW Survey (SEP)
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Sep 16
BSI Large All Industry (3Q)
Sep 17
SNB Rate Decision
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Sep 17
Bank of Japan Rate Decision
Written by: John Kicklighter, Currency Strategist for DailyFX.com
Questions? Comments? Send them to John at <[email protected]>.