The week is soon to end and breakout pressure is as high as it has been in recent memory. These are not the markets to look for range opportunities; but rather to prepare for potential breakouts or volatile retracements. However, for those who covet this passive strategy (and are not doing so through speculating on a dollar reversal), there are a few opportunities to lower our risk profile and highlight a possible congestion zone.
[B]Why Would EURCHF Hold a Range?
• [U]Levels to Watch[/U]:
-Range Top: 1.5335 (Trend, Fib)
-Range Bottom: 1.5210 (Fibs, Trend, Pivot)
• [/B]Risk appetite is still pushing higher and the majors are on the verge of a major bear shift. These are dangerous times and there are very few pairs that can avoid the full brunt of this pending risk. EURCHF can weather much of the dollar’s impact and even a major shift in risk appetite; but it is not fully sheltered. What’s more, there is considerable, unique event risk to deal with. The ECB rate decision is top billing, but there is considerable data. [B]
• [/B]Typically, this pair is extraordinary stable. Most of the market’s progress is made on very slow biases or sharp rallies or declines. Considering the level of surrounding volatility and the closing wedge formation, this may be in store in the near future. In the meantime, moderate support comes in through a frequented pivot meeting Fib confluence near 1.52. [B]
• [U]Long[/U]: Congestion is likely near support so entry orders can be placed at 1.5220 after the close.
• [U]Stop[/U]: An initial stop of 1.5180 is set tight to account for the high probability of a breakout. 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 (40) at 1.5260 and the second target is set to 1.5310.
[/B] [B]Trading Tip[/B][B] – The week is soon to end and breakout pressure is as high as it has been in recent memory. These are not the markets to look for range opportunities; but rather to prepare for potential breakouts or volatile retracements. However, for those who covet this passive strategy (and are not doing so through speculating on a dollar reversal), there are a few opportunities to lower our risk profile and highlight a possible congestion zone. Fundamentally, we need to avoid the US dollar and those pairs that are correlated to risk trends. This is difficult to do and obviously limits our options to those currency pairs that have tight economic links and are essentially on the same plane of risk. AUDNZD and EURCHF are the only two that really fit the bill at this point. Switzerland is essentially a part of the Euro Zone, but it retains its monetary policy capabilities and sees heavy currency flows through its trade with the rest of the region. This pair is still exposed however to a potential breakout. Should the dollar surge or plunge across the board, it could catalyze a euro run as the major’s primary counterpart. Alternatively, a significant enough swing in risk appetite could catalyze a technical breakout. To counter lessen our risk, we will wait until next week’s open to watch price and will further cancel all open orders by Tuesday.[/B]
[B]Event Risk for Euro Zone and Switzerland[/B]
[B]Euro Zone[/B] – If the US dollar breaks support or sparks a major recovery, the euro is likely to experience the greatest cross winds. This is the immediate risk come Monday morning; and the dollar’s direction may eventually turn into a move on risk appetite. In the scheme of high to low risk, the euro falls somewhere in the middle. Policy officials have forecasted a fast-track return to growth; but this is likely hiding larger, underlying problems. A positive turn in growth will likely have been found through government spending and business activity that was based on cost cutting efforts. In contrast, unemployment is rising and consumer spending falling. On a country to country basis, there are those economies that are ahead of the curve for the economic rebound (like Germany and France); but then there are also those that are still dragging through recessions (such as Ireland and Spain). This imbalance could remove support for a region-wide economy before it can be established and jeopardize a double dip recession. On this point, we will monitor growth potential through retail sales and industrial production; but it is the ECB decision and commentary that really impacts speculation.
[B]Switzerland[/B] – The Swiss seem to have reached a tentative deal on their banking records spat with the US. This represents a significant political risk for a currency that is known for its safe haven status through its private banking sector. Along with the specter of possible SNB intervention, this exogenous and unpredictable risk represents an ongoing fundamental threat. In the meantime, volatility could bubble up through scheduled event risk. The economic docket will cover inflation, manufacturing activity, consumer spending and employment through July – all the essentials for a general assessment of economic activity.