Extraordinary Volatility For GBPCHF May Still Conform To Long-Term Technicals

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

The British pound has been put through its paces over this past week. Aside from the activity we saw this morning, the sterling was on an unabashed bullish trajectory that aligned itself with a rise in risk appetite - a necessary driver for one of the most beaten down economies in the industrialized world. Heading into the close of yesterday’s US session, the rise in sentiment was starting to ebb; and coupled with a downgrade on the debt rating outlook from the S&P, the impact on the pound crosses was substantial. However, the sharp increase in volatility wouldn’t influence my long GBPJPY setup from last week as both my targets were tagged by the first half of this week. This cross is now coming into contact with notable range resistance; but this isn’t the formation I’m looking for among the pound crosses.

For this sterling this week, I’m following GBPCHF. This has a lot of the same fundamental influences as its yen-based counterpart; but the technicals are more developed. For event risk (scheduled and unscheduled) my two primary concerns are general risk sentiment in the broader market and the scale for growth. Looking ahead, the influence on the growth outlook will be directed by scheduled indicators crossing the wires. However, the more influential driver is risk appetite. That is more difficult to benchmark as it is difficult to discount those events that can influence the broader sense of sentiment across the board. The best I can do is work with a reasonable setup to follow technicals. I am looking to short based on the fib confluence pulled from the March to December 2008 bear wave around 1.7350. Adding significant backing to this region we further have the falling trendline that goes back to November that is now traversing this region. Considering today’s range is already 300 points (and GBPAUD has violated a similar pattern - though it is on the opposite side of the risk scale), it is clear that this is a risky venture. My entry on two lots will be 1.7335. I will cut the position size in half to allow for a stop out to 1.7535 without taking too much additional risk. My frist target will equal risk at 1.7135 and the second will be much more aggressive at 1.6855. If I am not entered by the end of the day, I’ll cancel all orders (as this position should be playing out now). I will consider taking profit before the week’s end as well considering the exposure to volatility this pair sees.