EURCHF Looks to Avoid the Volatility in Risk Appetite Trends

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

There are few corners in the currency market that can escape the influences of risk appetite. Last week, my decision to follow technicals rather than account for the potential volatility underlying GBPCHF proved a bad one. The long-term trendline that linked the November 2007 to October 2008 was lining up with a pivot at 1.75 that had directed price action from October to February. Despite this notable buffer, volatility on Monday would overwhelm my stop. However, additional resistance stationed further above in a long-term 38.2% Fib retracement and 200-day SMA would ultimately push the market back (though this ceiling too would have to undergo a false break).

Considering the veil of volatility that still hangs over the market, I am going to try and isolate the back and forth of risk appetite and avoid those pairs that have a proclivity for false breakouts. Compared to GBPCHF, EURCHF is an exceedingly stable pair. Months of congestion is supported by the direct economic links between the Euro Zone and Switzerland. However, there are pressures building between the two. The Swiss economy lags its larger counterpart in terms of growth and monetary policy. Therefore, signs of a tentative recovery or accelerated decline will filter through the euro first. What’s more, the SNB has made their efforts to intervene in the FX market well known. There is potential to range trade here between 1.5225 and 1.5025; but my interest is in the eventual breakout. It may take some time and moementum is always questionable with this pair; but I will wait for a close above heavy resistance at 1.5225 (where a 50% Fib of the December to March decline, 200-day SMA and falling trendline all fall) as a signal for entry. My stop will be no more than 125 points; but will be set depending upon any trends or clear levels on higher frequency charts. My first target will equal risk and the second will look to clear the last swing high in March on to a move to 1.5650.