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An Intraday CHF/JPY Descending Channel is Creating Scalping Environment

An Intraday CHF/JPY Descending Channel is Creating Scalping Environment

2011-02-04 21:47:00
Christopher Vecchio, CFA, Sr. Currency Strategist
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The CHF/JPY pair has been trading to the downside for more than the past week, after gaining in late December following sideways movement for the middle part of the month. Overall, both the Swiss Franc and the Japanese Yen have been particularly strong in recent months compared to other majors on risk aversion; concerns over the European Union’s ability to remain solvent as well as unstable governments teetering in the Middle East has led to the flight to safety of recent. With a light docket of economic releases ahead, trading the CHF/JPY channel looks to provide traders with an opportunity to find profits without the risk of a major breakout.

Key Technical Levels

2011.02.04_ScalpingEDITOR_body_Picture_1.png, An Intraday CHF/JPY Descending Channel is Creating Scalping Environment

Charts created using Strategy Trader– Prepared by Christopher Vecchio

For the near-term, the CHF/JPY could expect to see further declines as the 5-SMA is set to cross below the 20-SMA. The 20-SMA at 86.347 has provided moderate support in the near-term, but as the pair continues to adhere to the channel, the 20-SMA provides new resistance for the CHF/JPY. Accordingly, the CHF/JPY has been range bound between its 20-SMA and 50-SMA (86.347 to 85.443) for the past twenty-four hours. The next level of resistance is the 61.8 Fib on the January 13 to January 27 move, at 86.245, while the 100.0 Fib at 85.083 represents the last support on the move. The CHF/JPY is currently trading just between the 76.4 Fib and 61.8 Fib.

2011.02.04_ScalpingEDITOR_body_Picture_4.png, An Intraday CHF/JPY Descending Channel is Creating Scalping Environment

Charts created using Strategy Trader– Prepared by Christopher Vecchio

Looking at the 60-minute charts, the descending channel appears more defined. The CHF/JPY has rebounded off of the range bottom, and short-term technical indicators point towards gains. The RSI has moved north after touching oversold levels earlier in the day and is currently at 39.59, while the MACD Histogram differential is barely negative, with momentum leaning positive as well. Furthermore, the Slow Stochastic is also trending towards a buy signal, with %K at 29.91 and %D at 30.07.

Key Support/Resistance Levels to Watch

Indicator

Timeframe

Level

Fibonnaci – 76.4%

Daily

85.801

Fibonnaci – 61.8%

Daily

86.245

Fibonnaci – 50.0%

Daily

86.604

5-SMA

Daily

86.578

20-SMA

Daily

86.347

50-SMA

Daily

85.443

100-SMA

Daily

84.823

200-SMA

Daily

84.001

Bollinger Bands – Upper

120-min

86.655

Bollinger Bands – Lower

120-min

85.705

Quantitative Metrics

Heading into the next few hours, with an ATR of 80 on the daily charts, it appears that there is room from the CHF/JPY to gain towards the top of the channel once more. On the 15-minute chart, a smaller, narrower descending channel has formed within the broader one as seen on the 60-minute and 120-minute charts. Trading on the RSI on the 15-minute charts within the channel has presented opportunities for traders to identify tops and bottoms for the CHF/JPY pair, and coincidentally, resulted in 20 to 60 pip gains per move.

2011.02.04_ScalpingEDITOR_body_Picture_7.png, An Intraday CHF/JPY Descending Channel is Creating Scalping Environment

Charts created using Strategy Trader– Prepared by Christopher Vecchio

Volatility / Activity Indicators

EURUSD

GBPUSD

USDJPY

USDCHF

USDCAD

AUDUSD

NZDUSD

GBPJPY

EURJPY

ATR (14)

0.0158

0.0150

0.7200

0.0108

0.0073

0.0118

0.0086

1.4222

1.2633

ATR %

1.16%

0.93%

0.88%

1.14%

0.73%

1.17%

1.11%

1.08%

1.13%

5d - 20 d SMA

-0.0273

-0.0192

0.7579

0.0140

-0.0013

-0.0082

-0.0071

-0.3795

-1.2234

Bollinger Band

0.1191

0.0786

2.2544

0.0477

0.0165

0.0291

0.0266

4.1978

7.8225

Implied Vol (1wk)

11.7700

9.7525

10.2000

11.6650

8.7100

12.6375

12.7350

11.1350

11.6500

Possible Fundamental Affect

With no data coming across the wires affecting the Franc or Yen directly, the descending channel for the CH/JPY pair is expected to hold over the next twenty-four hours with little risk of a major breakout, from a technical perspective, on the horizon. The next market moving data for the pair comes on Monday, when Japanese economic activity indexes are released, followed by the Swiss unemployment rate, on Tuesday.

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Written by Christopher Vecchio, DailyFX Research.

To contact the author of this report, please send inquiries to: instructor@dailyfx.com

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

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