Over the past 24 hours we have seen a massive shift in risk sentiment and the result for the broader currency market was volatility. Does this move stand as a temporary reversal or a reestablished trend? Regardless of which category you fall into, it is a speculative bet that poses an ongoing threat to potential range setups. The fundamental and technical buffers for USDCHF are about as good as they come.
[B]Why Would USDCHF Hold a Range?[/B]
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· [B][U]Levels to Watch:[/U][/B]
[B]-Range Top: 1.1725 (Trend Channel)[/B]
[B]-Range Bottom: 1.1450 (Trend, Fib, SMA, Pivot)[/B]
· Like the EURCHF setup from yesterday, this pair is somewhat buffered to the all-consuming influence of risk sentiment. However, instead of tight economic ties, these two currencies are instead both considered key safe havens for the currency market. At the same time, the dollar has acted on this fundamental trait more readily, leading to volatile responses to shifts in risk trends. Scheduled event risk becomes a larger issue next week.
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· USDCHF is not carving the traditional, horizontal congestion pattern. This pair has developed a rising trend channel pattern since reversing the sudden plunge back in mid-to-late March. Resistance is defined by little more than the top of the channel formation; but short-term technicals are a little more encouraging. Both boundaries are in flux.
[B][I]Suggested Strategy[/I][/B]
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· [B][U]Short[/U][/B][B]: Half-sized entry orders will be placed at 1.1680 which is just above an intraday level.[/B]
· [B][U]Stop[/U][/B][B]: An initial stop of 1.1760 covers yesterday’s highs, but not much more. 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 equals risk (80) at 1.1600 and the second[/B][B] target will be 1.1520. [/B]
[B]Trading Tip [/B]– Over the past 24 hours we have seen a massive shift in risk sentiment and the result for the broader currency market was volatility. Does this move stand as a temporary reversal or a reestablished trend? Regardless of which category you fall into, it is a speculative bet that poses an ongoing threat to potential range setups. The fundamental and technical buffers for USDCHF are about as good as they come. For price action, a broad and shallowly sloped rising trend channel can absorb volatility while still offering clear levels for setting stops and targets. From an event risk perspective, this pair is comprised of two currencies considered to be top safe havens. However, there is still a clear bias for US dollars when fear rises to a high enough level. What’s more, we are working with a technical pattern that is on the move and has few additional legs of confirmation to call a top on our target resistance level. Altogether, this is still a risky setup and our strategy accounts for this with a stop that will cut a position should price action disrupt the upper boundary of the trend channel. Half-sized entry orders will further cut the notional risk that we take. As always, we will place a time limit on this trade window by removing any lingering orders by Thursday or should spot hit 1.16 before we are entered.
[B]Event Risk for US and Switzerland[/B]
[B]US[/B] – Right now, the US dollar’s fundamental direction is tied to the broader economic theme of market-wide event risk. Despite questions over the health of the world’s largest economy, the forthcoming outcome of the Fed’s stress test and growing US debt ratio, the greenback is still coveted for its liquidity and the stability of the economy. It is unclear how long this market dynamic will hold; but as long as sentiment is driven to a relative extreme, it is prudent to expect the dollar to respond. Should market sentiment settle or other circumstances change, the dollar will have plenty of scheduled economic data to fill in for market activity. For the rest of this week, we housing sales and durable goods orders will present another round of objective but lagging data to gauge economic health. The consumer confidence figure on Friday will take up the ante next week; but the 1Q GDP number will be the real show stopper.
[B]Switzerland[/B] – In the past 24 hours, the Swiss franc has appreciated quickly against many of its counterparts due to its safe haven status. The currency will no doubt continue to follow the whims of sentiment; but at some point the market will have to consider at what point the SNB will fulfill its vow to prevent further appreciation. Should it come down to a battle of wills (and liquidity) the market is far too large to push around. In the meantime, we have a range of notable economic indicators to keep the market occupied. This week, we have trade data and an investor sentiment survey to measure two important aspects of the Swiss economy: capital flows and foreign demand. After the weekend, the UBS consumption indicator will offer a snapshot of domestic spending and the KOF Swiss Leading Indicator composite will provide a broad reading on economic activity.
[B]Data for April 22 – April 29[/B]
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[B]Data for April 22 – April 29[/B]
[B]Date (GMT)[/B]
[B]US Economic Data[/B]
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[B]Date (GMT)[/B]
[B]Swiss Economic Data[/B]
Apr 23
Existing Home Sales (MAR)
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Apr 23
Trade Balance (MAR)
Apr 24
Durable Goods Orders (MAR)
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Apr 23
ZEW Survey (APR)
Apr 28
Consumer Confidence (APR)
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Apr 28
UBS Consumption Indicator (MAR)
Apr 29
GDP (1Q A)
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Apr 29
KOF Swiss Leading Indicator (APR)
[I]Questions? Comments? You can send them to John at <[email protected]>.[/I]