The markets have experienced a dramatic reversal in risk appetite and the US dollar through past 24 hours. It isn’t a coincidence that these this turn between sentiment and currency come hand-and-hand; and it should not be forgotten when defining our trades.
[B]Why Would USDCHF Hold a Range?[/B]
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· [B][U]Levels to Watch:[/U][/B]
[B]-Range Top: 1.0965 (Pivot, Fibs)[/B]
[B]-Range Bottom: 1.0600 (Trend, Fib)[/B]
· In an unlikely turn of events, the [Swiss economic docket is the more heavily stocked calendar](http://www.dailyfx.com/story/currency/chf_fundamentals/Swiss_Franc_Volatility_Risk_High_1244840362403.html) for USDCHF. An SNB rate decision, first quarter industrial production report, retail sales figures and the SECO growth outlook offer high-level event risk. However, while these indicators are fundamentally important; they have little chance of catalyzing a major breakout. The true threat to this pair is risk appetite and the general strength of the dollar.
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· Today’s 150-point, USDCHF rally marked a minor break above resistance – though the true technical turning point lies around 1.0965. Through the first half of May, this level acted as a temporary double bottom. And, since the break, it has reverted into a range resistance with multiple tests. With a 50% Fib as confirmation, we could see another rebuff.
[B][I]Suggested Strategy[/I][/B]
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· [B][U]Short[/U][/B][B]: Half-sized entry orders will be placed at 1.0935 to fall within today’s range.[/B]
· [B][U]Stop[/U][/B][B]: An initial stop of 1.1035 should avoid moderate false breakout attempts. 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 (100) at 1.0835 and the second[/B][B] target will be 1.0735. [/B]
[B]Trading Tip[/B][B] – The markets have experienced a dramatic reversal in risk appetite and the US dollar through past 24 hours. It isn’t a coincidence that these this turn between sentiment and currency come hand-and-hand; and it should not be forgotten when defining our trades. For USDCHF, the links to this underlying fundamental driver are blurred. The dollar is the primary safe haven when liquidity and financial conditions are threatened; but the franc itself is considered a safe haven currency and this specific pair’s bond to EURUSD can sometimes overwhelm other considerations. To garner a clear outlook for this pair, we need to narrow the conditions effecting USDCHF to its simplest form. The dollar is the primary driver for this pair; and therefore, a range or breakout rests with the direction and intensity of risk appetite. A [pull back in optimism following the G8 meeting](http://www.dailyfx.com/story/bio1/US_Dollar_Higher_After_G8_1245040509023.html) is reasonable considering officials’ decision to avoid a unified withdrawal for government funds on fears that the economic recovery is still too fragile. Balancing it out, this does help to break the stride on a very aggressive appreciation in yield-intense assets; but at the same time, this does not present something the market did not already know. Technicals present a clear setup for a range; but we need to acknowledge the risks. A reasonable stop is notionally wide, so we have to cut position size. Furthermore, this pair is very similar to the USDJPY setup from this past Friday; and exposure to risk-trends should not be leveraged. For timing, we will cancel all open orders by Wednesday or should spot hit 1.08 before entry. [/B]
[B]Event Risk for US and Switzerland[/B]
[B]US[/B] – Scheduled economic event risk from the US docket has tapered off over the past week. Looking ahead, the docket once again is expected to produce little in the way of market-moving event risk. For influence, most of the notable releases will filter through price action by adjusting expectations for long-term growth. Wednesday’s first quarter current account balance is the most commanding piece of data; yet it clearly lags the GDP numbers that have already been well documented. Indicators like housing starts and industrial production will present more timely numbers to work with; but their impact on forecasts for economic recovery is questionable. Straying from the confines of data, speaking engagements for policy officials on the health of the economy and financial markets will help market participants benchmark their expectations and perhaps give a look into future policy efforts. In the meantime, the high volatility in risk sentimentfollowing this past weekend’s G8 meeting could blur the dollar’s immediate future.
[B]Switzerland[/B] – Risk trends still hold a considerable influence over the Swiss franc; but this direct link has tapered significantly from 12 months ago. Today we can see that the health of the Euro Zone economy and Switzerland’s own domestic faring are just as influential to direction (if not more) than its status as a safe haven. At the G8 meeting this past weekend, it was made abundantly clear that European officials would not perform their own bank stress tests – threatening regional financial troubles. As for the domestic economy, factory activity, retail sales and the SECO forecast will all factor in. The SNB could even surprise with quantities easing.
[B]Data for June 15 – June 22[/B]
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[B]Data for June 15 – June 22[/B]
[B]Date (GMT)[/B]
[B]US Economic Data[/B]
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[B]Date (GMT)[/B]
[B]Swiss Economic Data[/B]
Jun 16
Housing Starts (MAY)
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Jun 16
Industrial Production (1Q)
Jun 16
Industrial Production (MAY)
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Jun 17
Retail Sales (Real) (APR)
Jun 17
Current Account Balance (1Q)
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Jun 17
SECO 2009 Economic Forecasts (JUN)
Jun 17
Consumer Price Index (MAY)
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Jun 18
SNB Rate Decision