pairs to range trade

CHFJPY Buffered Against Heavy Event Risk While Cutting A Mature Wedge

Monday, 02 February 2009 22:19:42 GMT  |  John Kicklighter, Currency Strategist

There is a considerable amount of scheduled event risk on the economic docket this week – posing a considerable threat to the stability in potential range setups. One pair that will avoid much of the initial volatility present in this worrisome list and defer to the underlying fundamentals is the technically active CHFJPY.

Why Would CHFJPY Hold a Range?   ·         Levels to Watch: -Range Top:       74.75 (Trend, Pivot, Fib, SMA) -Range Bottom: 75.85 (Range Bottom, Fib)   ·         There is a lot of scheduled event risk for the currency market in general over this coming week; but CHFJPY will likely avoid the volatility inherent in the high-level data and instead follow along with the underlying trends that develop from the wave. In all likelihood, neither the Franc nor the yen will respond to their respective economic dockets. As two key safe haven currencies, the real driver will be the intensity of risk trends over the coming week.   ·         Looking at the short-term and longer-term CHFJPY chart, we can see two distinct technical setups. From a daily chart, the past four months’ worth of price action has developed two descending triangle formations with a blurred support around 76-75. Zooming in, we can see the trend pulling price action lower with considerable resistance overhead.   Suggested Strategy   ·         Short: Entry orders on a break of the falling trend can be set at 77.55 – right on the pivot.   ·         Stop: An initial stop at 78.15 is wide, but does not cover the falling trend just yet. To secure profit, move the stop on the second lot to breakeven when the first target hits. ·         Target: The first objective equals risk (60) at 76.95. A second target is 76.35.

Trading Tip – There is a considerable amount of scheduled event risk on the economic docket this week – posing a considerable threat to the stability in potential range setups. One pair that will avoid much of the initial volatility present in this worrisome list and defer to the underlying fundamentals is the technically active CHFJPY. Both the Japanese yen and Swiss franc are known for ignoring scheduled data and taking direction instead from market-wide risk trends. Such a correlation could present its own problems; but this pair goes one more step at buffering fundamental volatility by setting the two currencies against each other.  This means, that the primary driver of CHFJPY will ultimately be the intensity of risk trends and the market’s decision as to which currency is the better harbor from risk. Looking beyond the docket, there is further a strong technical case for a range setup from this pair. Currently, the market is cutting the second, wide descending wedge formation; which happens to have a bearish bias and 200-250 points of wiggle room. Despite the favorable setup, we will still look to avoid unnecessary risk by canceling all open orders by Wednesday.  

Event Risk Switzerland And Japan

Switzerland – The Swiss franc is the lesser safe haven when compared to its Japanese counterpart. Nonetheless, this currency will still find is direction in the currency market through scheduled and unscheduled event risk that can stir volatility among the fundamentally-minded traders in the market. A specific piece of external event risk that could have a profound impact on the swissie is the ECB rate decision. The Swiss economy and central bank are known for following their larger European counterpart. Should European rates be unexpectedly cut, the franc would find itself falling in sympathy to the euro. Looking at the Swiss docket, there is plenty of data to alter expectations for long-term fundamentals. The December trade report and January labor report are two key readings for general growth. The CPI figure will have limited influence on interest rate decisions going forward (as the benchmark is already at 1.00 percent); but it will nonetheless tell the market how easy it will be for the SNB to pursue rate cuts going forward. 

Japan – The Japanese yen is the undisputed safe haven currency. Long known as the primary carry currency, the Japanese unit is further prized for the depth of the economy that backs it and the significant amount of savings that naturally supports the financial market in times of stress. This title will prove particularly influential through this week’s key economic releases: the RBA, ECB and BoE rate decisions as well as Friday’s US NFPs. From its own docket, there is plenty of data that could help define the health of the Japanese economy – especially within the context of the position of the global economy. Taking the read on consumers, measures of earnings and confidence will take weight of their potential contributions to growth. In other news, the Eco Watchers survey will measure business activity while the Leading Index for December takes stake on growth through early released indicators.

Data for February 3 – February 10			Data for February 3 – February 10
Date	Swiss Economic Data		Date	Japanese Economic Data
Feb 3	Trade Balance (DEC)		Feb 2	Labor Cash Earnings (YoY) (DEC)
Feb 6	Unemployment Rate (JAN)		Feb 6	Leading Index (DEC P)
Feb 10	CPI (YoY) (JAN)		Feb 9	Eco Watchers Survey: Outlook (JAN)
			Feb 10	Consumer Confidence (JAN)

 

Questions? Comments? Send them to John at jkicklighter@dailyfx.com.

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