The difficulty for range traders now is not in finding congestion patterns but in finding congestion patterns that have consistent and definable levels that can support a reasonable setup. USDCHF has established a very consistent channel for the past three months and has recently built up confirmation for relative support.
How stable is a USDCHF Range?
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· [B][U]Levels to Watch:[/U][/B]
[B]-Range Top: 1.0950 (Range, Pivot, Fib)[/B]
[B]-Range Bottom: 1.0550 (Channel, Pivot, Range)[/B]
· Like most of the majors, USDCHF is heavily dependent on both risk trends and the general perception of the US dollar. However, this particular pair may be even more reactive to these two drivers than most. While [both the franc and dollar](http://www.dailyfx.com/story/currency/chf_fundamentals/Swiss_Franc___US_Dollar_1251924384762.html) have been considered safe havens at some point in the past, the former has lost much of its clout through SNB intervention and failing banking secrecy. In the near-term, the NFPs release is top event risk.
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· While there are many pairs that have established some form of congestion, few are as consistent as what USDCHF has carved out over the past three months. There is a gradual, [bearish bias guiding this pair lower](http://www.dailyfx.com/story/bio2/Buy_Dollar_Pullbacks_1251901256844.html). However, support is substantial on all time frames with the past two weeks of lows, a channel bottom and long-term pivot.
[B][I]Suggested Strategy[/I][/B]
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· [B][U]Long[/U][/B][B]: Setting entry orders at 1.0570 is well within the range of lows for the past two weeks. [/B]
· [B][U]Stop[/U][/B][B]: A stop of 1.0510 should cover the gradual bias and consistent range of lows in support. 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 is wider than our stop (80) at 1.0650. The second[/B][B] is 1.0780. [/B]
[B]Trading Tip[/B] – The difficulty for range traders now is not in finding congestion patterns but in finding congestion patterns that have consistent and definable levels that can support a reasonable setup. USDCHF has established a very consistent channel for the past three months and has recently built up confirmation for relative support. However, this pair has more than its fair share of risks. From a broader market perspective, range conditions are very fragile. The widespread, technical stability seen in every corner of the market suggests there is something amiss. This can be partially attributed to thin liquidity; but more importantly, investors are awaiting the signal for the next substantial trend. In essence, a breakout is inevitable. This is something to keep in mind in taking this trading approach – regardless of the pair. In the meantime, the particulars for USDCHF do little to further confidence. From a fundamental perspective, the franc is losing its status as a safe haven through intervention, protectionist efforts and the diminishing sense of secrecy for the nation’s renowned banking industry. This will provide a clear direction for this pair should sentiment shift. What’s more, the bearish bias in the market is putting pressure on a substantial level of support. Altogether, we will keep the life of open orders short and cancel them before NFPs.
Event Risk for the US and Switzerland
US – With sentiment starting to stumble, we have seen the dollar turn into one of the immediate benefactors. This connection to risk appetite means that the long awaited breakout for the world’s most liquid currency may come from out of the blue as optimism often rises and falls without the helm of a specific indicator. However, should these intangible winds die down; we will still be left with plenty of fuel for a traditionally defined, event-driven breakout. There are a few notable pieces of event risk on the economic docket over the coming week (like the ISM services sector survey and trade balance); but the real threat to volatility is the Friday’s NFPs. The market-moving influence of this report has not been absolutely consistent recently; but we should not discount its potential impact. With the trend clearly set in a steady improvement, a smaller than expected net loss (or an actual gain) would likely find the best follow through.
Switzerland – Though there have been some exceptional, high-level pieces of event risk on the Swiss docket; the franc has not responded to the fundamental influence with any significant volatility in price action. The greatest threat of domestically derived volatility was the recent 2Q GDP report. However, the slower than expected pace of contraction would ultimately fail to make a lasting impression on price action. Now, looking ahead, there are only second tier releases on the docket. Both the August CPI figures (due Friday) and next week’s labor data are economically important but consistently overlooked. Speculators will instead keep their sights trained on the health of the Euro Zone – Switzerland’s largest trade partner – to discern the health of the small, independent nation. It will further be important to keep abreast of risk trends. Low liquidity could help catalyze a meaningful shift in sentiment should US NFPs or the G20 meeting alter the outlook for global growth, financial health or interest rates.
[B]Data for September 3 – September 10[/B]
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[B]Data for September 3 – September 10[/B]
[B]Date (GMT)[/B]
[B]US Economic Data[/B]
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[B]Date (GMT)[/B]
[B]Swiss Economic Data[/B]
Sep 3
ISM Services (AUG)
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Sep 4
CPI (AUG)
Sep 4
Change in Non-Farm Payrolls (AUG)
[B][/B]
Sep 8
Unemployment Rate (AUG)
Sep 9
Fed’s Beige Book
[B][/B]
Sep 10
Trade Balance (JUL)
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Written by: John Kicklighter, Currency Strategist for DailyFX.com
Questions? Comments? Send them to John at <[email protected]>.