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EURCHF- Short Term Channel Scalp

EURCHF- Short Term Channel Scalp

2011-05-12 18:35:00
Michael Boutros, Technical Strategist
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EURCHF-_Short_Term_Channel_Scalp_body_Picture_4.png, EURCHF- Short Term Channel Scalp

Recent price action has presented a channel scalp opportunity for the EURCHF pair between 1.2620 and 1.2560. As the euro continues to pare some of the steep losses seen earlier in the week, the swisse remained buoyed as cautious investors held on to Europe’s haven currency. With the RSI and MACD indicators pat at mid-levels, the pair may continue to range within this channel until a shift in sentiment dispels the range.

The targeted profit on these scalps should be between 20, 30 pips depending on entry. The 1.2580 level provides ample entry opportunities, adding to longs with a move to 1.2560. Topside targets are eyed at 1.2610 and 1.2630. Likewise, shorts from these levels target the entry longs just mentioned.

Key Thresholds

A move above the long term 23.6% Fibonacci extension taken from the September 2010 and December 2010 troughs at 1.2650 invalidates the scalp. A shift in risk appetite could see losses for the swissie accelerate, giving the euro enough momentum to break above the Fib extension targeting the 1.2670 level. Likewise a break below 1.2540 would void this particular scalp, with targets eyed at the long-standing lower bound trend line of the wedge formation seen on the daily chart below.

EURCHF-_Short_Term_Channel_Scalp_body_Picture_7.png, EURCHF- Short Term Channel Scalp

It’s worth noting our biased on the pair remains bearish as continued concerns over the debt crisis in Europe sees traders regularly seeking safety in the swissie as the euro declines. This scalp strategy emerges amid a lull in the overall bearish trend as the dollar gives back some of the gain seen over the course of this week. As risk appetite returns, traders seeking yields may unwind haven flows, giving the pair some lift to the topside.

EURCHF-_Short_Term_Channel_Scalp_body_Picture_10.png, EURCHF- Short Term Channel Scalp

A look at today’s relative performance confirms our theory of a tandem move of the euro and the Swiss franc, with both currencies advancing 0.51% against the dollar mid-day in North American trade. The expected time frame for this particular scalp trade is 6-12 hours.

Key Support/Resistance Levels to Watch

Indicator

Timeframe

Level

Fibonacci Extension – 23.6%

Daily

1.2650

Fibonacci Extension – 38.2%

Daily

1.2806

Fibonacci Extension – 50.0%

Daily

1.2933

10-SMA

Daily

1.2679

20-SMA

Daily

1.2776

50-SMA

Daily

1.2876

RSI

Daily

41.13

Resistance 1 Target

10min

1.2610

Resistance 2 Target

10min

1.2630

Topside Limit

10min

1.2650

Support 1 Target

10min

1.2580

Support 2 Target

10min

1.2560

Bottom Limit

10min

1.2540

Event Risk

Event risk for the trade mounts at 6:00 GMT when Germany releases the 1Q preliminary GDP figures. Consensus estimates call for a print of 1.0% q/q, up from the previous read of just 0.4% q/q. The year on year figure is also called higher at 4.5% from previous print of 4.0% y/y. However, the euro zone GDP print at 9:00 GMT is sure to have more of an impact on this pair, with estimates calling for a read of 0.6%, up from 0.3% q/q. Again the year on year print is expected to climb by 0.2% to 2.25% in Q1. A stronger than expected print here could see the pair higher, targeting the above mentioned levels.

Written by Michael Boutros, Currency Analyst for DailyFX.com

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

You can also follow Michael on Twitter @MBForex

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

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