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Posts Tagged ‘AUDCHF’

The countdown is winding down. Tomorrow, we have the last gasp of big event risk that will define both growth expectations (with the UK 2Q GDP release) and more importantly, risk appetite trends (through the EU Stress Test Results). This is a round of events that will cover the entire market; so there are very few pairs that could be expected to avoid risk all together. For this reason, we should be looking to pairs that are setting up to substantial trends, breakouts or reversals rather than those that are already underway. Most important of all, it is important to avoid taking any freshly developed moves just before the release. While you can come out on the right side of the event risk; you could just as certainly be on the wrong side and see a position that was supposed to last for a little while and offer a sizable return force you out for a large loss almost immediately. Those are odds I like to avoid. That being said, I do modest exposure going into the release. It is relatively limited though; and I will remain flexible. Ultimately, we may not have an opportunity to take a new trade until Monday given the late release of the EU report; but it is better to wait a little bit for a good trade rather than force a bad one.

For my book, there are only three open. One trade is still in the money and has a stop set at breakeven. Currently, AUDCHF is struggling with very consistent resistance set at 0.9325 which gives good enough distance from my stop at 0.9415 to allow this to play out into a possible risk aversion trend. For my USDJPY long interest, I’m still in a small size position and I am looking for a much longer term and am therefore able to survive short-term volatility. That being said, a demand for a safe haven or yield will put the dollar in the driver’s seat regardless. Finally there is my CHFJPY short. My only remaining full-size position, this one lost all momentum after putting in for a trend channel break and reversal. A stop at 84.60 offers room to work and this pair is not highly sensitive to risk trends; but it is enough to push risk above what I like.

The real interest now comes in potential trades. There are plenty of them. EURUSD is at the top of this list with 1.30 closer now than it was at yesterday’s close. A truly positive outcome could overwhelm this level and there are few resistance levels above that. Alternatively, a reversal would be easy to accomplish after the past two months’ run. For a straightforward risk appetite outcome, I like EURJPY on a break of 113.25/50. GBPUSD is another pair that could go both ways. A rising trend channel can encourage continuation or offer momentum in a potential reversal. Another major to add to the list is USDCHF. An exaggerated range bottom at 1.04 is begging for resolution. A similar long-term support is found in GBPCHF at 1.5850. CADJPY has a rising trendline as a consistent floor. All of these are high potential opportunities. These will be our trades for next week.

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We have entered another day of chop as the economic docket has hollowed out and unexpected event risk feeds the short-term volatility that draws in the uninitiated traders. For those that are fundamentally savvy; it is common knowledge that there is major data and risk over the final 48 hours of the week; and things could become especially complicated in this period. We could very well see a tentative breakout with the collective wave scheduled for tomorrow (European PMI figures, Canadian retail sales, US leading indicators and existing home sales); but given the influence of the data points due on the following day, any substantial move will be tempered by the fear of a possible sharp reversal. Therefore, I need to tread lightly with my existing positions; and my pending positions are for watching until very specific conditions are met.

For my active positions, AUDCHF seems to have stalled in its bounce with a loose overhead at 0.9325 that wouldn’t hold up very well to a strong drive in risk appetite trends. The yen is still causing my CHFJPY short some problems. Not surprising, this pair’s reversal following its break of a 8 week rising trend channel is quickly falling into the gravity of Friday’s event risk. I may have to reduce size ahead of this event as this is now just above my entry point. At the same time, my long-term USDJPY is still relatively light and the fundamentals line up when the short-term volatility of immediate uncertainties pass.

Like the siren’s song, there seems to be a ton of very appealing trading setups in the FX market right now; but most are attractive because they are short-term and potential breakouts (or reversals on range boundaries depending on how things develop). These are exactly the conditions you do not want to dive into considering the volatility that we face heading into the end of the week. On the other hand, we can keep an eye on them and gauge whether they are optimal setups after we get clear bearings to work with. EURUSD seems to be calling me now with a tentative reversal from 1.30 that works within a loose rising trend channel. The lack of technical acuity though makes it pretty easy for me to hold off. Can’t say the same for GBPUSD. This pair is at the floor of a rising trend channel and I am once again interested in its performance. I will keep an eye on this one with Friday’s UK GDP report as well. A potential positive outcome to the EU Stress Test would make a 113.35/50 break from EURJPY a good opportunity. Alternative risk aversion would work well for a AUDUSD reversal from 0.8850, AUDCAD drop below 0.91, AUDNZD collapse below 1.21 and my long awaited CADJPY drop below 82. So enticing; but patience is a virtue with trading as it is with life.

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The choppy and reserved pace of activity that we have seen to start the week is a good sign of what we should expect this week. Hesitancy and caution are tantamount given the heavy round of event risk that looms this week. Both the Euro and risk appetite are at the greatest risk this coming week. My primary concern is what is going to happen with the EU stress test results due at the end of this week. European officials are smart to release it after market liquidity drains for the week as traders will have time to chew on it rather than letting panic spread organically. Other concerns over the coming week are the UK’s 2Q GDP reading, the BoC rate decision and a range of top tier indicators scheduled for release. It is perhaps this combined threat of risk going forward that has restrained sentiment trends and the euro today despite a round of very unsettling headlines. Those updates that were most shocking was the rumor that Hypo Real Estate failed the stress tests; news that Ireland was downgraded and the warning that Hungary’s talks with the IMF and EU over an extended credit line broke down. All of this points to financial troubles for one of the world’s largest markets.

As for my existing positions, my AUDCHF is holding up relatively well but it is made little progress with today’s choppy markets. Alternatively, I decided to cut GBPCHF at breakeven because the pair has failed to produce the follow through that I would expect from a breakout and reversal. What’s more, with public debt figures due tomorrow, this currency is looking at potential volatility. New to my cadre today is a short CHFJPY position on a test of 83 to confirm that the two-month rising trend channel has indeed reversed course. A stop 160 points higher means a first target should be equidistant. Finally, I still have my USDJPY long; but it is still in a small size. Testing another lower, even level will encourage a build in the position size as will a confirmed reversal. Just off recent historical lows, further downside progress will be exceptionally difficult to force.

As for potential trades, I have also taken the liberty to trim the fat here as well. There is heavy event risk with the UK; so I cut out the pound setups. The euro based opportunities will have to pass greater scrutiny – though I still like a potential reentry on EURCAD and maybe even a drive above 1.50 for EURAUD. Ahead of the Bank of Canada’s rate decision tomorrow, AUDCAD is on the verge of confirming resistance or extending its bullish drive. I would take up a position with the former scenario in a break below 91. AUDNZD is still deep in its congestion pattern so that is on the backburner. Finally, I like CADJPY which is currently testing is very long-term and frequented rising trendline support around 82.

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The options are endless for potential trade setups heading into the end of the week. In fact, a number of those pairs that I have been watching for the past week have actually jumped into action. The problem is that many of these moves are based on very volatile levels of investor sentiment and they have taken place just before the weekend. It is a risky position just to jump in late on a move and hope that momentum will pick back up after the weekend (or reverse if you are attempting to catch a reversal). It is important to play these developments with caution. As for the drive behind this sharp swing in sentiment, it is safe to say that the preceding build up was overdone and a correction was inevitable. A specific catalyst though can be assigned to the questionable performance of today’s top 2Q earnings figures and the poor performance of key US data. It is difficult to tell whether this a correction for a burgeoning bull trend or the resumption of a larger bear trend. The weekend is not the time to make this assessment and place trades on it.


For my active setups at this point, my short AUDCHF is moving onto its second day of declines and is struggling to keep up momentum into the close. Surprisingly, there seems to be little or no safe haven appeal in the franc when it comes to GBPCHF. The pair has pulled back from my entry and the potential for a reversal has diminished significantly. I will see how things develop early next week to see whether I should simply cut out or hold with it. With the BoE minutes, public debt figures and the 2Q GDP release all due, the sterling could be looking at a very volatile ride. Then there is my long USDJPY position. We have broke 87; but I will hold. Position size is important with this one as it allows me to tolerate a much wider stop. That also means less profit should it turn my way; but I am looking at this for the longer term.


As for the potential trades I will be looking at first thing next week, there are two categories: those that are active immediately and those I’m still waiting on to make their move. Amongst the active, CHFJPY tops the list. Finally breaking 83, this pair has put in for a clear reversal effort after developing a near two-month rising trend channel. I’ll look for a retest of former support and the necessary fundamental support to offer me entry. Being exceptionally cautious of the pound given its forthcoming event risk, the EURGBP break above 0.8425/00 is leaving me with a wait-and-see approach. EURCAD is another pair to make a fast break above a triple top resistance at 1.3425. I’ll look for the same retracement; but I’ll be exceptionally careful with the euro given the EU stress test results coming out next Friday.


Now on to the potential trades that are still one step away from active. Another euro-based pair, EURAUD is facing a long-term descending trendline around 1.49/50 that could facilitate a slow reversal that has developed over the past three months. The other opportunities on my radar are highly sensitive to risk appetite trends. CADJPY has pulled back to 82 and is testing horizontal support and a long-term rising trendline (and a nice head-and-shoulders neckline). AUDCAD has risen back to a major bearish break level at 0.92; but I need confirmation that this will hold as resistance. AUDNZD was tempting my long awaited break below 1.2150; but has since reversed sharply to head back into congestion.

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Correlations are starting to shift. We have seen the dollar deviate from its standard role as a safe haven currency for some time; but the gap between currency and driver seems to be growing wider each week. This morning’s price action is evidence of that. However, the unusual developments don’t stop there. While the euro and pound would rally through the early trading hours, the most risk-sensitive currencies were actually retracing – and doing so against the pummeled greenback. What does this mean? Well, considering equities were down on the morning, we see that risk appetite is still holding in most areas. The disconnect therefore is coming through the European currencies. News that a Spanish bond sale found significant demand seems to work on the speculative principal that the euro’s drop through the first half of the year has been overdone. Will the dollar and European currencies fall back into line or are things permanently loosening their correlations? Time will tell.

For my positions, I have cut the NZDUSD long off at break even. The immediate lack of follow through on a breakout is leading me to further doubt the upside objective this could reasonable meet over time. Also, there is a descending trendline from the 11/16 swing high that is now working on its fourth test at 0.7250. Best to step back and reassess. As for long risk-based AUDCHF, a sharp tumble has put me back on track; but this is going to be a medium-term setup. Siding with its funding component and playing on the weak dollar, USDJPY is falling towards 87 and pushing my long deeper into the red. I won’t add at the next even level as I want to keep it lower risk. Also, deviating from the general strong performance of the sterling elsewhere, GBPCHF has fallen back after the progress made in a medium-term reversal. I have set a stop at 1.5950.

As for potential setups, we are seeing some very attractive ones develop. AUDNZD is once again threatening a bearish break from its congestion of the past two months. A close below 1.2150/25 would be a good signal to start building a position. AUDCAD is questionable given its bearing; but I still consider it a potential short opportunity. CHFJPY is still holding to its rising trend channel; but 83 is my signal level just in case. For EURGBP, I am cautious ahead of the EU stress test results; but 0.84 and 0.83 are levels to watch for a potential technical move. Finally, CADJPY has retraced sharply and is once again within striking distance of a very high-profile rising trend channel. A break of this technical level would be an excellent entry effort.

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Investor confidence continues to develop; but the foundation of support this recovery is basing itself on is far too unstable. Troubles in US economic data, European financial readings, Chinese efforts to prevent an uncontrollable market slump suggest there is plenty of risk to be concerned over. However, regardless of how dire the outlook may be, the speculative interests of the crowd are what define a successful trade. Therefore, I will defer from short-term trades that fight this current and not take any lasting or large trades that counter my personal fundamental bearing.

Reconciling these rules to my current trades; both my AUDCHF short and USDJPY long meet my long-term forecasts and are set for a lasting time frame. For the former, the stop on the remaining half of my position (the first half was taken off for profit some time ago) holds at my breakeven point at 0.9415. USDJPY is set for the long haul; so I wait am waiting for the Fib at 89 to give way. Dropped from my book, my GBPUSD short was stopped out at 1.2565 this morning. The channel reversal did not ultimately grow legs; and scheduled event risk coupled with interest rate expectations has produced volatility. Taking the cable’s place, I have taken a long GBPCHF position at 1.6080. This is another trend reversal opportunity; but this time, I fit the prevailing trend for risk and the weak outlook for the franc is encouraging. Another new one is NZDUSD. A break from congestion coincides with a long-term technical pattern break, encouraging me to go long on a small position at 0.7210 with a stop at 0.7150.

As for potential setups, I’m seeing a lot. I’m particularly interested in a meaningful USDCHF reversal that depends relatively little on risk appetite trends. A break above 1.07/0675 would signal a push from congestion and reversal progress. Another reversal opportunity that goes outside the normal bounds for risk appetite is CHFJPY. Here, I’m looking at 83 as the signal point. Perhaps interesting alongside further price developments is EURGBP. Along similar lines, I’m waiting for AUDCAD and AUDNZD to develop before taking a stance (but I’m liking the short-side on both).

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