CHFJPY Offers A Stable Range In A Volatile Market

Over the past week, volatility in the currency market has increased while direction has completely faded. Under the right circumstances, this could be beneficial to range traders; but in this unpredictable mix of activity, clearly defined technicals have been overrun by false breaks. Most of the yen crosses have pressed their technical boundaries, but CHFJPY has been able to keep its bearings through this morning’s sharp reversal.

Trading Tip – Over the past week, volatility in the currency market has increased while direction has completely faded. Under the right circumstances, this could be beneficial to range traders; but in this unpredictable mix of activity, clearly defined technicals have been overrun by false breaks. Most of the yen crosses have pressed their technical boundaries, but CHFJPY has been able to keep its bearings through this morning’s sharp reversal. In the initial yen rally, the pair dropped below the range of lows set through last week’s price action – just above a major Fibonacci retracement at 86.25. However, it seems as if the daily candle will close well above this level, meaning it still has influence over price action. What’s more, the intra-day plunge did not threaten the larger, bull trend that guided price action since late January. Our strategy takes advantage of the dominant trend with an entry that is conservative on the short-term charts and a stop that is wide enough to cover the larger technical formation. Fundamentals will further help price action along as CHFJPYT is buffered from all but the most ardent trends in risk appetite.  Time is always a component of a trade; and we will cancel all open orders by Friday or should spot hit 88.50 or 85.90 before we are entered.

Event Risk for Switzerland and Japan

Switzerland – Considering the fundamental developments behind the Swiss franc over the past two months, it is surprising not to see a far greater level of volatility and/or more progressive trends. Looking back to these developments, it is fair to presume they may present the greatest threat to stability going forward. A looming consideration, we have the SNB’s vow to actively depreciate its own currency to support its exports. Of course, this further highlights the trouble such a policy could cause after the G20 meeting where the world’s policy makers vowed to shun protectionist agendas. Switzerland’s long-held position as the world’s bank may also be in jeopardy as primary trade partner, the EU, looks to draw up sanctions on the basis the economy provides shelter to tax dodgers. Along more mundane lines, event risk will also pick up over the coming week. Housing, trade, consumption and trade readings are all due.

Japan – Though the Japanese yen is no longer the undisputed safe haven currency the market has to offer, it nonetheless retains its seat among the top three. As such, the yen will track the health of general risk appetite.  It is difficult to forecast what could be a major market moving event in the future; but there are a few lingering threats that could catalyze into a more influential market driver. Among the most ominous hazards is earnings session in the US. Optimism in the capital markets is fragile; and a dose of reality in which earnings are crashing could dramatically change the market’s course. What’s more, with a market focusing on the pending results of the ‘stress test’ on American banks, a sudden announcement or contributory earnings number could amplify volatility.