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How stable is the USD/CHF Range?

How stable is the USD/CHF Range?

2010-03-11 18:56:00
John Rivera, Currency Analyst
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usdchf

• Levels to Watch:
-Range Top:       1.0800 (Range, Pivot)
-Range Bottom: 1.0680 (Range, Pivot)

• Risk winds have died down following the post NFP volatility which has seen dollar crosses prone to consolidation. The greenback has held onto its status as a funding currency and high correlation with risk sentiment. Combined with the lack of influence on the Franc by Swiss fundamentals leaves the USD/CHF looking for a bout of risk aversion to keep the current range intact.

• Psychological resistance at 1.0800 has been formidable with the upper bound of the current range the more reliable of the two. Support at 1.0680 has given us a short-term target but from a longer-term perspective 1.0650 may be more formidable.

Suggested Strategy

• Long: Place an entry at 1.0670-below the lower bound.
• Stop: Set the stop to 1.0640-just below the longer-term support level.
• Target: The first target is 1.0756-20-Day SMA, followed by 1.0796-3/10 high

Trading Tip – Markets have quieted considerably including the USD/CHF giving credence to a potential breakout. We have placed our entry below the lower bound of the short-term support level with the longer-term barrier providing insurance below. Recent risk appetite has been founded more on relief than optimism which doesn’t make for a sustainable trend. Greece finding solutions for its credit issues and the U.S. labor market losing fewer jobs than forecasted aren’t the basis for an extended bullish rally. Weakness in equity markets would be a supporting factor for the dollar as it continues to be a safe haven for anxious traders and will be a clue that our strategy may prove successful. In time this relationship will dissipate, but until then we will look to take advantage of the strong correlation between risk and the greenback. Considering our stringer faith in the upper bound of the current range we have opted to limit our risk on this trade with a shallow stop. Therefore, we may look to add to our position with a break above our first target, the 20-Day SMA as it would increase upside potential.

Event Risk for U.S. and Switzerland

U.S. – The next major event risk for the dollar is the advance retail sales report which is forecasted to show a 0.2% decline as shoppers were home bound as snow blanketed large parts of the country during February. Weak consumer consumption will dim the outlook for domestic growth and could spark a bout of risk aversion. Industrial production and housing starts two key gauges to judge the economy’s growth potential and emergence from the recession will also cross the wires. However, the looming FOMC rate decision may see traders overlook the releases as they wait for clues into future monetary policy. The central bank is expected to leave rates unchanged with Fed fund futures giving a zero percent chance of a rate hike. However, any indication of a change in the timetable for tightening could generate considerable volatility.

Switzerland – Swiss fundamentals have little impact on franc price direction which was the case with today’s SNB rate decision. Inflation, export and output readings are all important to gauge the health of the economy which was viewed as improving but “fragile” by policy officials. The SECO economic forecast could have the most relevance as any divergence from the recent predictions by the SNB could generate a reaction as it could alter the outlook for future monetary policy.

table chf


 

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