CHFJPY Range Weathers Heavy Volatility

As expected, the aggressive plunge in risk appetite over the past two active trading sessions has stalled.  What wasn’t anticipated was the aggressive reversal that has developed. Clearly, volatility is high market-wide; and the more sensitive a pair is to risk appetite, the more severe the swings and potential for breakouts. CHFJPY cannot completely avoid such a pervasive driver; but it does dampen its influence.

Trading Tip – As expected, the aggressive plunge in risk appetite over the past two active trading sessions has stalled.  What wasn’t anticipated was the aggressive reversal that has developed. Clearly, volatility is high market-wide; and the more sensitive a pair is to risk appetite, the more severe the swings and potential for breakouts. CHFJPY cannot completely avoid such a pervasive driver; but it does dampen its influence. This pair’s ability to weather factors like risk appetite and yield forecasts is obvious given its long-term sense of congestion. A gradually pitched, bullish trend channel has defined price action since March; and it likely to exert its influence on price action for a few months to come. In the interest of the bigger market structure, a swing down to the bottom of this channel is possible but unlikely unless there is a notable deflation in sentiment over the coming week. Without any clear signals for investors in different asset classes to develop a consensus around, such an outcome seems unlikely. As such, we are looking for near-term support to hold price action up. Considering the relative stability of this pair, timing is less of a constraint. However, we will remove all open orders before Friday’s close.

Event Risk for Switzerland and Japan

Switzerland – There are few indicators - or even broader market drivers for that matter - that can spur the Swiss franc into a new trend. Scheduled event risk is particularly flimsy when it comes to moving the currency. However, there is no lack of notable indicators on the docket. Considering its wide breadth, it could factor into growth recovery and interest rate forecasts – considerations that are responsible for long-term trend. This week, both the July trade balance and August ZEW investor sentiment survey will cover exogenous factors. Trade to the Euro Zone will be particularly noteworthy as an expected recovery in Switzerland’s largest trade partner will define the Swiss rebound as well. After the weekend, the focus is turned back onto domestic factors. The UBS Consumption Indicator and employment gauge for the second quarter will gauge the pace of internal growth. As for risk appetite, the correlation to sentiment is starting to fade thanks to the SNB’s intervention efforts and attacks on the renowned secrecy of the financial system. 

Japan – There are very few economic indicators on the Japanese docket that could hope to rouse volatility from the yen. However, specific, domestic indicators are not the concern of those that trade the favored safe-haven currency. Instead, traders will be more concerned with the ebb and flow of risk appetite; which is far more difficult to forecast than moves born of scheduled event risk. Over the past 72 hours of active trade, the trends in risk appetite have been highly active and volatility. However, there has been relatively little, fundamental data to support this unusual increase in action. Monitoring the various security classes (equities, commodities, fixed income) as well the headlines for unexpected market events will give a good sense for direction from the yen. 

Written by: John Kicklighter, Currency Strategist for DailyFX.com.
Questions? Comments? Please send them to jkicklighter@dailyfx.com.