Just last week, we were looking for a range to develop for USDCHF. However, the rising trendline that began with March 2008 lows would prove to be less influential at holding a floor up at 1.07 than we anticipated. Our initial stop on that position was set close as we were looking only to play the tight chop of the previous two weeks.
[B]Why Would USDCHF Hold a Range?
• [U] Levels to Watch:[/U]
-Range Top: 1.0950 (Pivot, Fib, Trend)
-Range Bottom: 1.0640 (Pivot, Fib, Range Low)[/B]
•Many risk sensitive pairs are on the verge of igniting a new bull trend. However, we would need a catalyst and steady fuel to support such a shift. As a fundamental current, earnings may have lost its potency as the large, positive surprises that began with Goldman Sachs have grown sparser as the season wears on. Global growth forecasts may take control; yet the UK GDP number due this week is expected to disappoint. Range support is building.
•There is a clear range of congestion to work with in USDCHF. Our immediate support is a triple bottom that coincides with a long-term, prominent 61.8% fib retracement at 1.0640. However, the swing low back in early June just below 1.06 is noteworthy in its own right as a notable pivot. Momentum, however, is medium-term bearish.
• [U][B]Long[/B][/U][B]: Half-size entry orders will be placed at 1.0660, which is well within today’s range.
• [U]Stop[/U]: An initial stop of 1.0560 is purposefully wide to cover the early June swing low. To secure profit, move the stop on the second lot to breakeven when the first target hits.
• [U]Target[/U]: The first objective equals risk (100) at 1.0760 and the second target is set to 1.0860. [/B]
[B]Trading Tip[/B] – [B]Just last week, we were looking for a range to develop for USDCHF. However, the rising trendline that began with March 2008 lows would prove to be less influential at holding a floor up at 1.07 than we anticipated. Our initial stop on that position was set close as we were looking only to play the tight chop of the previous two weeks. While yesterday’s extension on risk appetite trends (and subsequently dollar selling) stopped tripped this tight stop; the range on this major is still valid. However, this time around, we must give the range more room to move. We have cut our position size in half and set entry orders to minimize the risk profile. A wide stop is essential as stubborn and slow extensions on recent dollar selling could push this pair all the way to its early June swing lows. From a fundamental perspective though, this position is somewhat torn. A high correlation could drag USDCHF into a major bear shift should EURUSD mark its own bullish breakout. At the same time, this pair’s link to risk trends is relatively staid – a fact that could buffer moderate shifts in sentiment. This is not to mean it is not immune to general risk appetite flows. A significant rise in sentiment could lead the dollar to break support and lead to a plunge across the board. Due to this risk, we will not take this position if we have any other risk averse exposure on the books; and we will remove all open orders by the end of tomorrow’s session.
[B]Event Risk for US and Switzerland[/B]
[B]US – [/B]A look at the US dollar index shows the kind of precarious position the world’s most liquid currency is in. On the brink of a major shift in trend, fundamental traders will be very sensitive to underlying economic trends as well as any potential sparks for volatility through scheduled economic releases. For the big picture, range traders should keep an eye on earnings. The quality of the accounting figures have deteriorated with time; but a surge in profit from a financial leader or industry blue-chip could turn the tides when sentiment is so close to the edge. On the other side of the risk spectrum, the private rescue of commercial lender CIT may fade from headlines for a short-time; but it wouldn’t take much to tip this major credit player into insolvency. As for foreseeable threats, the economic docket is well stocked. The housing sector (the argued source of our current malaise) will be well covered with an specific inflation reading for May as well as existing and new home sales for June. As next week wares on, the threat to breakouts intensifies. Consumer confidence and durable goods orders are notable indicators; but next Friday’s 1Q GDP release may pacify the market before sizable moves. [B]
Switzerland – [/B]Considering the relatively sparsely populated economic docket over the coming week, the Swiss franc will likely take its direction from risk appetite, SNB intervention and updates on the nation’s attempts to keep banking privacy laws intact under global pressure. In the past few months since the central bank announced its intentions to intervene in the market and push the franc lower, the currency pulled back against its primary counterpart – the euro. However, it has failed to hold onto meaningful depreciation. What’s more, it is still appreciating against other major trade partners.