The breakwater has finally given way for the yen crosses. Such a move should encourage all range traders to pause and consider whether this was just a currency specific move or a genuine shift in risk appetite. If it is the latter, the implications would be a high risk of breakout for nearly every other pair that has a link to sentiment.
[B]Why Would USDCHF Hold a Range?
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· [B][U]Levels to Watch:[/U][/B]
[B]-Range Top: 1.0950 (Pivot, Trend, SMA, Fib)[/B]
[B]-Range Bottom: 1.0700 (Trend, Pivot)[/B]
· The yen-based crosses have won high-level, bearish breakouts over the past 24 hours. This could spell trouble for range traders in other risk-sensitive positions; but is this really a shift in sentiment. We have not seen equities or any of the other major asset classes produce similar levels of volatility. The biggest threat to stability is a dollar-born break in other majors. There are quite a few notable releases on the docket; and even the G8 could rock the boat.
· USDCHF has moved within a defined range since late May. And, though the market has held its boarders relatively well with time, there has been a gradual bullish bias developing through short-term lows and bearish trend over the long-term. Immediate resistance is called up on a range of highs at 1.095 meeting trend, Fibs and SMA.
[B][I]Suggested Strategy[/I][/B]
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· [B][U]Short[/U]: Entry orders will be placed at 1.0925 which is just below the confluence of resistance.[/B][B][/B]
· [B][U]Stop[/U]: An initial stop of 1.10 looks only to cover immediate resistance, not the June 24 swing. To secure profit, move the stop on the second lot to breakeven when the first target hits.[/B][B][/B]
· [B][U]Target[/U]: The first objective equals risk (75) at 1.0850 and the
second target is set to 1.0775. [/B][B] [/B] [B]Trading Tip[/B][B] – The breakwater has finally given way for the yen crosses. Such a move should encourage all range traders to pause and consider whether this was just a currency specific move or a genuine shift in risk appetite. If it is the latter, the implications would be a high risk of breakout for nearly every other pair that has a link to sentiment. Looking across the field of risk sensitive assets today, we can see that many other markets weren’t following suit; and where they did, it was taking a much more reserved pace. With the yen crosses already putting in for a temporary low and considering technical bracing is still in place for most other assets; USDCHF offers a strong range setup. Resistance at 1.0950 is battle-tested and is very obvious with a confluence of pivot, trend, moving average and Fib. With spot just off resistance, we are further presented with a low-risk/high-reward setup. Our strategy looks for entry near resistance and sets a stop just above the range of highs. We will not look to cover June’s spike high as such a development would dramatically change the perspective of price action and increase the probability of a long-term reversal. With respect to our risk profile, there is still significant risk of a breakout. It will be important to watch equities and other risk sensitive markets going forward and to cancel all open orders by Friday. [/B]
[B]Event Risk for US and Switzerland[/B]
[B]US[/B] – In periods of extreme market conditions, the US dollar is treated as a safe haven or burden depending on the direction of risk appetite. However, when sentiment fluctuations cool, the more lasting fundamental themes are exposed. The currency’s place in the global market and economy’s relative pace of recovery are the two key considerations for price action. However, discussions of replacing the dollar as a reserve currency are very sporadic and minor in the short-term. The BRIC’s meeting this week will no doubt echo their calls and China’s recent use of yuan-based foreign contracts give it more weight; but this is far from large scale. Growth on the other hand is immediate and ever-present. The Euro Zone is already preparing for positive growth; but the US is probably in the better position to pull back into the green first. Each indicator that crosses the wires over the coming week will weigh in on this debate. Consumer confidence, retail sales, industrial production, credit activity, and inflation numbers will all fine tune the consensus forecast for economic activity. The FOMC minutes due in the week ahead may similarly adjust the outlook from a policy official’s point of view.
[B]Switzerland[/B] – Recently, the Swiss franc has loosened its ties to risk appetite. This works in range traders’ favor as it helps dampen the ever-present influence of shifting sentiment. Instead, the franc may find guidance from the world’s policy makers’ efforts to crack down on global tax shelters. In the financial crisis and recession, many governments have looked to recoup taxable earnings and capital that has been filtered into secretive Swiss bank accounts. Swiss officials have done what they can to protect the vital wealth management sector of their economy; but pressures are mounting – especially with industrial leaders pulling together for global solutions. For event risk, only next week’s retail sales report holds any clout as a market mover; but it is well outside our trade window.
