• Home ::
• Technical ::
• Forex Strategy ::
• Pairs to Range Trade

• Send
• Print
• Add To
• Rss

Pairs to Range Trade

78ba5ae6-9870-4cfd-9da0-de2ac1579493

7

0

A Short−Term GBPCHF Range Will Have To Avoid Risk Trends

Tue, Feb 17 2009, 05:50 GMT
by John Kicklighter

DailyFX

While GBPJPY may not have exposure to a specific piece of major event risk over the coming week; recent range activity is still under significant strain. With a high correlation to risk trends and a capacity for tremendous volatility, any attempt at making a successful trade through congestion must be developed with a strong technical setup.

Why Would GBPCHF Hold a Range?

• Levels to Watch:
  -Range Top: 1.7475 (Fib, Pivot, Trend, SMA)
  -Range Bottom: 1.6475 (Fib, SMA, Trend)

• The financial markets are balancing a fine wire in regards to risk. A wave of growth data released this month has confirmed the global economy is on pace for its weakest performance since World War II; and the worst of the data hasn’t even crossed the wires. Add to this, the potential for another financial seizure and the threat of another slump is obvious. On the other hand, bailout efforts have been stepped up. Either way, there will be a substantial shift in sentiment.

• GBPCHF is struggling to find its way between two significant trends. The dominant trend (going back years) still holds in the bears favor. However, the recent reversal from December’s lows has provided a tentative bull wave. How long can this general trend last? Support found in a 38.2% Fib, 20-day SMA and short-term trend will weigh in.

Suggested Strategy

• Short: Half size or smaller entry orders will be set for a bullish position at 1.6540.

• Stop: Our initial stop will be set at 1.6380. This is very tight considering volatility, but necessary. To secure profit, move the stop on the second lot to breakeven when the first target hits.

• Target: The first objective equals risk (160) at 1.6700. The second objective is deeper at 1.6900.

Trading Tip – While GBPJPY may not have exposure to a specific piece of major event risk over the coming week; recent range activity is still under significant strain. With a high correlation to risk trends and a capacity for tremendous volatility, any attempt at making a successful trade through congestion must be developed with a strong technical setup. Our proposed strategy is looks to limit risk as best as possibility; but the exposure this pair has to enormous daily price swings make it a difficult proposition. Our suggested strategy is very short-term. Our entry is very near spot and well enough above support that we can still find entry. The stop is set quite close considering swing lows going back to late-January; but our targets are just as reasonable. Entry and take profit should follow within 24 to 36 hours; otherwise, price action has not developed as it should have and the market could shift. As such, we will cancel any open orders by Wednesday’s Asian session open. Also, many of our recent range setups have a considerable correlation to risk trends. To avoid leveraging exposure to this one fundamental influence, we will not take this position should any other risk-related trades be on the books.

Event Risk UK And Switzerland

UK – The IMF expects the UK economy to suffer the worst recession among its industrial counterparts through 2009. This has leveraged a considerable weight for the pound to shoulder. As growth expectations and risk appetite wax and wane, the sterling is exposed through heightened sensitivity as one of the most fundamentally weak currencies amongst the majors. Domestic government efforts to recharge growth and find stability in the financial markets are key drivers going forward. Should Prime Minister Brown come encourage a stimulus package and ‘bad bank’ solution to rival that in the US, it could certainly turn speculation for long-term growth later down the line. Realistically, these are vague influences on price action; and the triggers are ill-defined. As for tangible, scheduled event risk, the UK docket holds its fair share of top tier data; but its impact is questionable. Tomorrow’ inflation data means little for a BoE that is concentrating on growth. Furthermore, Wednesday’s central bank minutes have been superseded by the quarterly inflation report. Net borrowing and retail sales numbers may generate a little interest as they clue in expectations for consumers and growth.

Switzerland – Is the Swiss franc still one of the market’s key safe havens? This is a question that will play no small role in deciding the currency’s price action over the coming days, weeks and months. Recently, the fundamental appeal of the yen and Japan’s assets have been shaken to the core with a growth report that marked the sharpest contraction in nearly 35 years. At the same time, the US dollar has been casted in doubt as the epicenter of the world’s virus. However, Switzerland, aside from having its tight link to the Euro Zone is still the banking center for the world. This makes for a clear and favorable safe haven should conditions deteriorate and a source of capital when they improve. As for economic data, the Swiss docket is only a minor threat.
Tomorrow’s retail sales report is the height of the docket; but trade, investment confidence and money supply figures may give a look into long-term growth trends.

Published on  Tue, Feb 17 2009, 05:57 GMT