Just when it seemed volatility for the broader market had stabilized, the majors and yen crosses were pressed into a risk appetite rally. This has not dramatically changed the technical landscape, but it nonetheless stands as a clear reminder that the tides can turn quickly in current market conditions.
[B]How stable is an CHFJPY Range?[/B]
</p> · [B][U]Levels to Watch:[/U][/B]
[B]-Range Top: 89.50 (Fib, Range, Pivot)[/B]
[B]-Range Bottom: 87.20 (Fibs, Pivot)[/B]
· There is significant event risk scheduled for the Japanese and Swiss economic calendars over the coming week; but the data’s potential for market impact is still questionable. The top release for the franc is the 2Q GDP release due on Tuesday. The yen won’t have the same, singular focus from fundamental traders; but the 2Q capital spending report could shape volatility. The real driver for price action remains the bank and forth in risk appetite.
[B][/B]
· It is easy to say CHFJPY is holding to congestion; but it is hard to suggest what the boundaries for this state are. While there have been frequent ranges and reversals for this pair, they are interspersed with unexpected breakouts and rallies. Currently, a range has developed between 89.50 and 87.20. Support is found through Fib confluence and a well-worn pivot.
[B][I]Suggested Strategy[/I][/B]
[B][/B]
· [B][U]Long[/U][/B][B]: Considering the large tails and frequent bursts of volatility, entry is set to 87.40. [/B]
· [B][U]Stop[/U][/B][B]: An initial stop of 86.80 will cover the range support, but wouldn’t hold a typical tail reversal. 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 (60) at 88.00 and the second target is set to 88.60. [/B]
[B]Trading Tip[/B] – Just when it seemed volatility for the broader market had stabilized, the majors and yen crosses were pressed into a risk appetite rally. This has not dramatically changed the technical landscape, but it nonetheless stands as a clear reminder that the tides can turn quickly in current market conditions. Most range-based opportunities are very high risk and must play out over a very short time or risk a dramatic reversal. Trying to cancel out our correlation to risk appetite, the best we can do is to dampen it through a pair that brings together two currencies that have similar reactions to market sentiment. CHFJPY attempts to do that with two carry currencies that are suffering economically and through attracting investor capital. However, we have seen in recent months that there is still a grade of risk in this pair that marks the franc as riskier currency. Our strategy must account for risk. Volatility is clearly a concern with large ‘wicks’ on daily bars and a historical precedence for unforeseen rallies. In trading this pair we are clearly at the mercy of prevailing optimism or pessimism. In response to this problem we have set entry very near the only consistent support level we have seen in the past three months. Our initial stop does not offer much room for a messy reversal; but it also allows for a quickly won first target. Timing is everything considered the level of market activity. We will cancel any open orders by tomorrow to avoid exogenous weekend event risk.
[B]Event Risk for Switzerland and Japan[/B]
[B]Switzerland [/B]– Compared to most of its usual counterpart, the Swiss franc is a safe haven or carry currency. However, this is a term that has been less and less appropriate for the Swiss unit over the past few months. While the benchmark lending rate is low and expected to stay that way for some time; the stability of the local market and exchange rate is highly uncertain. The SNB has been very forthright with its efforts to prevent appreciation in its currency that will further weaken their trade position and therefore their economy. More complicated is the bending of renowned banking privacy laws so the US could obtain records on tax evaders. As for the standard growth and interest rate speculation; the most influential piece of scheduled event risk for the coming week is the 2Q GDP release due on Tuesday. This will reveal whether the small economy will recover in step with its Euro Zone trade partner.
[B]Japan [/B]– There is little doubt that risk appetite is the primary driver for the Japanese yen. Not only can this generate unexpected volatility for its crosses; but it can also dampen the response to scheduled event risk that is not directly tied into the broader pace of investor confidence. This will leave the currency and most of its crosses on the edge of a knife as traders keep an eye for a general swell that can crosses the asset lines. What may drive these trends over the coming week is difficult to gauge. Unforeseen waves in sentiment are just as likely to start things off as a specific, big-ticket economic release. As for economic data from Japan, there is a good round of important, growth-defining data. Employment, consumer spending, factory activity and inflation are just a few of the reports. Top event risk is the 2Q capital spending report, offering a gauge for investment, potential employment and exports.
[B]Data for August 28 – September 4 [/B]
[B][/B]
[B]Data for August 28 – September 4[/B]
[B]Date (GMT)[/B]
[B]Swiss Economic Data[/B]
[B][/B]
[B]Date (GMT)[/B]
[B]Japanese Economic Data[/B]
Aug 28
KOF Leading Indicator (AUG)
[B][/B]
Aug 27
Jobless Rate (JUL)
Sep 1
GDP (2Q)
[B][/B]
Aug 27
Household Spending (JUL)
Sep 1
SVME – PMI (AUG)
[B][/B]
Aug 30
Industrial Production (JUL P)
Sep 4
CPI (AUG)
[B][/B]
Sep 3
Capital Spending (2Q)
[I]Written by: John Kicklighter, Currency Strategist for DailyFX.com
Questions? Comments? Send them to John at <[email protected]>[/I]