GBPCHF Meets Channel Support as Risk Aversion Dries Up

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

I took on bullish exposure to the British pound yesterday to a disappointing end. In a long GBPJPY position, I was expecting risk trends to remain sedate and see this pair and the other yen crosses pull back into their ranges rather than build the necessary force to produce a major breakout. However, even though risk aversion was light yesterday; there was nonetheless a market-wide breakout for the Japanese currency. Ultimately, this was a currency specific move and has not soured me on the pound. With the broader currency market, demand for yield seems to be snapping back even though the initial tumble was centered on the yen. This has put GBPCHF in a unique fundamental and technical position.

Getting a handle on the fundamentals behind this pair, neither the sterling nor franc hold particularly tight links to sentiment; yet together, the pair has clear ties to the underlying driver. While optimism has generally faded over the past few weeks, the shift in sentiment has been otherwise stable. This is important as it means there is not enough momentum or volatility to drive unexpected breakouts. As for scheduled event risk, both economic dockets are relatively clear. The biggest threat to price action this week (the BoE rate decision) has already passed with little impact. Looking to put boundaries on these calm seas, technicals are providing clear levels to hold up price action. My primary concern now is the floor on the rising trend channel that began with March’s lows and now falls around 1.75 - where a long-term pivot has stood as support and resistance since October. I am looking for entry at 1.7535 (near the middle of today’s range so far) and an initial stop will be well below my technical confluence at 1.7415. My first target will equal risk at 1.7655. When the first objective is met, I will trial the stop on the remaining half of my position to take the emotions out of letting it eventually rise to my second objective at 1.7985.