USDCHF Range a Matter of Timing and the Right Conditions Monday

Trading Tip – As a general rule of thumb, it is never good to taking lasting positions against the dominate trend or your primary fundamental outlook for a pair or the market in general. It just so happens, that our outlook for risk trends conflicts with the long-term trend for USDCHF; but the tenet still stands. Over the past three weeks, the US dollar has maintained a tight trend with a moderate bias; while underlying risk appetite has withheld a material drive towards fear or greed for over two months. Such stability is not a natural state of speculative markets; so the threat of a breakout grows with each day that passes. Therefore, our suggested strategy to range trade the USDCHF’s recent channel should immediately have a time limit on it. We will hold orders open through Monday; but will promptly cancel them on the close of the US session. Another obstacle for this pair is the short-term trend is bearish; but our setup is for a bullish bounce. This is another argument for a keeping a strict timeframe, holding off until the market opens next week and watching price action as it develops. Our entry is aggressive (near the very bottom of the channel); but this affords a stop that covers the wicks that defined the former resistance/ now resistance area between 1.0210/180. As for our target, the first objective is well within the boundaries of the channel.

Event Risk for US and Switzerland

US – When investors decide to revive or reverse 2009’s primary trend (the aggressive and consistent advance in yield demand), the US dollar will be one of the key barometers. That being said, the currency has been very active over the past month even through underlying sentiment has chopped along for over two months. This reminds us that there are other fundamental factors that work on the greenback which are exposed when the market’s favored driver is out of commission. Looking into next week, we have plenty of event risk; but the data is likely good for only short-term bursts of volatility and not the momentous shift in underlying perspective that we need to revive activity. In the end, the likely catalyst for revived risk trends will be market sentiment itself. Nonetheless, it will be important to keep a wary eye on key releases. The retail sales, CPI, consumer sentiment, durable goods orders and small business confidence figures are all worth their salt.

Switzerland – The Swiss franc is neither the ideal funding currency (do to central bank intervention and shifting ideas of the country’s attractiveness as a banking center) nor does it readily react to schedule event risk. This makes the currency something of a fundamental wild card. Nonetheless, when volatility is stoked and momentum picks up, the Swissie will respond as readily as any other currency to its place on the risk spectrum. In the immediate future, there are few catalysts that promise to carry the markets to a new trend. However, from the Swiss docket, only the retail sales report is considered a notable figure.

Written by: John Kicklighter, Currency Strategist for DailyFX.com
Questions? Comments? Send them to John at jkicklighter@dailyfx.com