special reports

Swiss Franc May Look to Bounce Against Yen, Provide Attractive Range Trade Opportunity

Wednesday, 21 November 2007 22:39:24 GMT  |  David Rodriguez and John Kicklighter, Currency Analysts

Heading into the final two trading days of the week, we are heading into unknown territory in terms of market volatility. There is very little in the way of event risk from any of the major currencies; however, there is still a strong underlying current following the ebb and flow of risk appetite. In an attempt to neutralize possible market fluctuations from high volatility (sometimes a product of low liquidity in the market), we are looking to range trade CHFJPY. This pair is comprised of the FX market’s two most popular funding currencies. At the same time, this pair has produced a very consistent range over the past week – generally between 98 and 99.50. While there is a bigger range on the higher time frame, it is less consistent and we rather take profit on the smaller formation in a shorter amount of time rather than run the risk of setting up parameters for entry on a trade that could easily see a breakout next week on a return of event risk.

 

Trading Tip – Heading into the final two trading days of the week, we are heading into unknown territory in terms of market volatility. There is very little in the way of event risk from any of the major currencies; however, there is still a strong underlying current following the ebb and flow of risk appetite. In an attempt to neutralize possible market fluctuations from high volatility (sometimes a product of low liquidity in the market), we are looking to range trade CHFJPY. This pair is comprised of the FX market’s two most popular funding currencies. At the same time, this pair has produced a very consistent range over the past week – generally between 98 and 99.50. While there is a bigger range on the higher time frame, it is less consistent and we rather take profit on the smaller formation in a shorter amount of time rather than run the risk of setting up parameters for entry on a trade that could easily see a breakout next week on a return of event risk.

Event Risk Switzerland and Japan

Switzerland – Swiss economic event risk is seldom market moving, but an upcoming Employment level report has, on occasion, produced short-term volatility across CHF pairs. That said, the calendar is otherwise empty until the 27^th, when we will see Producer and Import Price figures for the month of October. Truth be told, markets have shown very little interest in Swiss inflation data through recent releases. Yet the recent emphasis on the Swiss National Bank and the future of domestic interest rates makes this a particularly important release. Otherwise, we expect relatively quiet price action through the Thanksgiving holiday and the further week of trading for the Swiss Franc.   

Japan – Traders have likewise largely ignored Japanese economic data, and the status of global financial markets is far more significant a market mover than individual Japanese economic reports. That said, traders will pay particularly close attention as to whether the downtrodden Japanese Nikkei 225 index can recover from its recent sell-offs through very short-term trade. In terms of actual economic event risk, Industrial Production figures on the 28^th could, perhaps counter-intuitively, be the most market-moving release through next week’s trade. Any strong disappointments in production numbers would only intensify speculation that the Bank of Japan could intervene and halt the JPY’s recent rallies.

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