Widespread Breakouts Leaves EURCHF Range A Last Option

Conditions are far from favorable for range traders. Risk aversion has soared with the start of the week; and many pairs have responded with major breakouts and trend reversals. In looking for a pair that has a viable chance at stable price action through fundamental and technical means, EURCHF rises to the top of the list.

[B]Why Would EURCHF Hold a Range?[/B]

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         ·         [B][U]Levels to Watch:[/U][/B]

         [B]-Range Top:       1.5300 (Fibs, Pivot)[/B]

         [B]-Range Bottom: 1.5080 (Fib, SMA)[/B]

         

         ·         Risk aversion has swept over the market; but the sudden fundamental rush may not be indicative of a new trend but rather general volatility behind sentiment. This is a quandary that is influencing the entire currency market and has had an obvious impact on price action. In attempting to find a range among a sea of breakouts, we need a pair like EURCHF that links two related economies with a low rate deferential.  

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         ·         EURCHF has been relegated to chop for over a month now (following the massive rally through the first half of March). There is notable support around 1.51 where a series of daily lows have verified the importance of a major 50% Fib and the 100-day SMA. However, it should also be noted that this [congestion has a definable bearish bias](http://www.dailyfx.com/story/currency_crosses/currency_crosses/Euro_Crosses_Slipping_Below_Support_1239737222005.html) to it.

         

         [B][I]Suggested Strategy[/I][/B]

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         ·         [B][U]Long[/U][/B][B]: Half-sized entry orders will be placed at 1.5100, just at today’s lows.[/B]

         ·         [B][U]Stop[/U][/B][B]: An initial stop of 1.5035 is set well enough below our confluence of 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 equals risk (65) at 1.5165 and the second[/B][B] target will be 1.5230. [/B]

                         [B]Trading Tip[/B] – Conditions are far from favorable for range traders. Risk aversion has soared with the start of the week; and many pairs have responded with major breakouts and trend reversals. In looking for a pair that has a viable chance at stable price action through fundamental and technical means, EURCHF rises to the top of the list. This pair is comprised of two currencies that are close trade partners, have historically taken similar approaches to their economic policy and have tightly linked financial markets. However, this does not mean that this pair can completely avoid such a prevalent theme for the market. An extreme in either direction can and will force a break for this pair as well. What’s more, there is a balance of other fundamental factors to consider. The euro is on the edge of a major decline that could be catalyzed by confirmation (or speculation) that the ECB will have to extend its policy of rate cuts well beyond the one percent mark or by a financial crisis that develops specifically out of Europe. On the other side, Swiss policy authorities have made their intentions of keeping the franc from appreciating well known. With all this in mind, it is obvious that stability is not an inherent characteristic of this pair; therefore, our strategy must tread carefully. We have developed a strategy that cuts position size in half on an already small notional risk; while our stops are set on clear technical levels. We will cancel all open orders within 24 hours to avoid a build of congestion around 1.51. The longer it takes for a rebound to develop the more likely a breakout is.

[B]Event Risk for Euro Zone and Switzerland[/B]

[B]Euro Zone[/B] – There are larger, more pressing themes behind the euro; but these market drivers will not have a readily available trigger to catalyze price action. Instead, we will need to keep a constant vigilance on speculation surrounding ECB rate expectations and the potential of a financial crisis borne within the European economy. Both are considered very real threats; so first quarter earnings data and timely economic indicators will have their place in altering speculation behind these two themes. In the absence of seismic fundamental shifts, we will have to keep an eye on notable, top tier economic indicators. A consistent flow of event risk includes sentiment readings (investors, consumer and business), debt load, inflation and leading sector activity readings.

[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 a quarterly housing sector activity report, trade data and investor sentiment survey to provide a wide and unusual range of data. After the weekend, the UBS consumption indicator will take measure of domestic spending.

                                     [B]Data for April 21 – April 28[/B]

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                                   [B]Data for April 21 – April 28[/B]

                                                     [B]Date (GMT)[/B]

                                   [B]European Economic Data[/B]

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                                   [B]Date (GMT)[/B]

                                   [B]Swiss Economic Data[/B]

                                                     Apr 21

                                   German ZEW Survey (APR)

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                                   Apr 21

                                   Real Estate Index Family Homes (1Q)

                                                     Apr 22

                                   EZ Gov Debt to GDP

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                                   Apr 23

                                   Trade Balance (MAR)

                                                     Apr 23

                                   EZ PMI Composite (APR A)

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                                   Apr 23

                                   ZEW Survey (APR)

                                                     Apr 24

                                   German IFO – Business Climate (APR)

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                                   Apr 28

                                   UBS Consumption Indicator (MAR)

[I]Questions? Comments? You can send them to John at <[email protected]>.[/I]