CHFJPY Among a Few Pairs Offering a Range with an Acceptable Risk Profile

Most of the yen crosses and the dollar-denominated majors have produced – or are threatening – what looks like trend-defining breakouts. The abrupt reversals to end this week may have delayed and even thwarted the development of a true changing of the guard; but the risk to range traders is nonetheless exaggerated.

Trading Tip – Most of the yen crosses and the dollar-denominated majors have produced – or are threatening – what looks like trend-defining breakouts. The abrupt reversals to end this week may have delayed and even thwarted the development of a true changing of the guard; but the risk to range traders is nonetheless exaggerated. Trying to establish any congestion based setup when the rest of the market is suffering from high volatility and on the verge of major trends is very dangerous. Therefore, as has been the case for more than a week now; our CHFJPY setup is only for those willing to accept the risk and are able to monitor the position closely. This pair is most appealing for its fundamental posture. Both the Swiss franc and Japanese yen are funding currencies with notable economic and financial market troubles. This does not mean an aggressive swing in risk appetite won’t lead to a straightforward trend in this pair (it will); but under normal conditions, technical boundaries should hold back a balanced fundamental position. Our strategy looks to take advantage of a very broad and choppy wedge pattern that has developed since March. The suggested entry is set very close to the rising trend and Friday’s spike low; so it may take time to trigger. We won’t wait too long however as all orders will be canceled by the end of Tuesday. The first target is certainly reasonable considering average daily ranges and it also looks to skew risk/reward in our favor. 

Event Risk for Switzerland and Japan

Switzerland – Market commentators blamed a plunge in the Swiss franc on intervention by the SNB. The central bank is one of the greatest unknowns for this meandering pair as it has laid out a staunch and vocal fight against appreciation in the domestic currency; and has done its part through intervention. It is impossible to determine ahead of time when they will act; but it should be noted that their frequency has been several months wide and the reactions to these unnatural efforts have generally faded over time. In the meantime, risk appetite will be the defacto guide for price action. The franc has lost some of its clout as a funding and safe haven currency over the months; but when the bias behind sentiment increases, the Swissie’s correlation tightens. As for economic data, the consumer-inflation gauge and employment rate will give a good gauge of health; but there is little chance a near-term policy change.

Japan – As usual, the Japanese yen will take its cues from risk appetite and the general demand for yield in the global market. However, there are other, interesting considerations that could lead to price action on their own. One of the most interesting considerations over the past two weeks has been Japanese Finance Minister Fujii’s stance on FX intervention. Where the official initially said that manipulation was unnatural and produced unfavorable consequences, he has recently changed his view in the face of a rallying currency and no doubt political pressure. A definitive statement or intervention itself will settle this debate. Another interesting development was from data. The jobless rate unexpectedly dropped from a record high and consumer spending jumped by the biggest percentage in 18 months. This may spark an interest in fundamental data hitting the wires over the coming week.