USDCHF Levels May Guard Against Another Jump In Volatility

Risk appetite seems to be on the rebound and the currency markets are recovering from sharp rallies across the board through consolidation. Often times, the low volatility period that follows incredible periods of price action leads to congestion. However, we have learned over the past few weeks not to bank on stability.

 

 

Why Would USDCHF Stay in a Range?

 

·         Levels to Watch:

-Range Top:       1.1490 (Swing High)

-Range Bottom: 1.1120 (SMA, Fib, Pivot)

 

·         Market conditions may seem as if they have through Monday’s session, but the risk of breakouts and dramatic volatility are obviously still very high. As such, it is best to avoid range trading or look for those with clear levels to structure a position around. USDCHF is showing clear levels; but should activity pick up, the nearby range extremes may give way to far greater technicals beyond them. Every range trader should monitor the financial crisis closely.

 

·         The technicals offer a decent setup with which to work with. Nearby support is called around 1.15, though a more significant ceiling is seen in a 1.1570 fib retracement or a multi-year falling trend now at 1.1675. Support is seen in a clear pivot around 1.1120 supported by a 50% fib of the September/October advance and 20-day SMA.

Suggested Strategy

 

·         Short: A limit order on two lots at 1.1480 is aggressive, but necessary.

·         Stop: The initial stop will be set at 1.1550 as this will be a short-lived setup. When the first lot takes profit, the stop loss on the second lot will be moved to breakeven to secure profit.

·         Target: First target should equal risk (70 points) at 1.1410. Second objective is 1.1275.

 

Trading Tip – Risk appetite seems to be on the rebound and the currency markets are recovering from sharp rallies across the board through consolidation. Often times, the low volatility period that follows incredible periods of price action leads to congestion. However, we have learned over the past few weeks not to bank on stability. As such, we have sought out relatively strong technicals in USDCHF and gave it a very short life as a setup. A short goes against the dominate trend, but is supported by bigger levels above our initial entry point. The suggested entry is very aggressive, but that is necessary for a decent risk/reward and given the potential for a flare up in volatility. This strategy is only good for 24-48 hours as market conditions are still uncertain at this point. Even if aren’t triggered on this pair by Wednesday, we will still revisit the pair later.

Event Risk US And Switzerland

US – US data is significant over the coming week, but its influence over the US dollar may be muted. Over the longer term, growth and inflation numbers will be monitored very closely for their potential impact on the exacerbation of an oncoming recession and the data’s implications for monetary policy decision. However, in the next few days to weeks, theinvestment community is more concerned with the stability of the financial markets and picking up the pieces from the market crash. All assets will be hyper-sensitive to any suggestions that interbank lending is once again pinched and/or there is a massive attempted liquidation of risky assets. Beyond this, from the data, we will look at retail sales and consumer confidence as more market-moving data for what it can generate. Inflation will also be influential since Fed Fund futures are forecasting additional cuts at the central bank’s meeting on the 29th.

Switzerland – The Swiss economic calendar fills out a little over the coming week, but its influence is still limited in terms of potential price reaction. Instead, the currency will be more closely correlated to the general direction of risk appetite. Should demand for yield rebound, volatility will likely cool and the franc will be unwound as traders no longer desperately need a safe haven currency. On the other hand, if fear rebounds, the battle between which currency offers the better harbor from uncertainty (the dollar, the yen or the franc) will go on. For scheduled event risk, the ZEW sentiment survey, trade number and Real Estate figures are foregone conclusions. Retail sales may generate a little more interest. 

Data for October 14 – October 21

 

Data for October 14 – October 21

Date

US Economic Data

 

Date

Swiss Economic Data

Oct 15

Advanced Retail Sales (SEP)

 

Oct 16

Retail Sales (Real) (AUG)

Oct 16

Consumer Price Index (SEP)

 

Oct 16

ZEW Survey (Expectations) (OCT)

Oct 17

Housing Starts (SEP)

 

Oct 21

Trade Balance

Oct 17

U. of Michigan Confidence (OCT)

 

Oct 21

Real Estate Index Family Homes (3Q)

Oct 20

Leading Indicators (SEP)