The Franc-Yen pair is particularly unique among the major currencies, as it represents two of the major safe haven currencies.

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Ascending · Channel · CHFJPY · Opportunity · Provides · Swing · Trading

While the CHF/JPY traded almost as high as 91.000 and almost as low as 76.000 in 2010, 2011 has painted a different picture thus far. For the first six weeks of the year, the CHF/JPY pair has been in a much 350-pip band, whereas over the same timeframe last year the pair had moved in a 600-pip range.

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Channel · CHFJPY · Descending · Opportunity · Provides · Swing · Trading

I was debating over whether to update my picks before or after the Stress Test. I think it is better to do it before; so I can look back at my potential setups to see how well they were formulated. Heading into this event; we have to first considered whether it will be actually market moving. We have seen too many instances in the past were big indicators have let us down when it came to actually fulfilling its unspoken pledge for volatility. As for this event, there is a reason EU officials decided to release the results at the time they planned – it is after the European market close and therefore most market participants will be forced to stew on the results until the following week. That being said, the FX crowd isn’t barred by such restraints; but we still have few hours of liquidity to work with. That being the case, volatility may spike; but follow through could be lacking. I may be encouraged into a very attractive technical and fundamental scenario to hold over the weekend; but the hurdle will certainly be set high. Short-term reactions offer better probabilities.

There is a lot of pent up event risk before the EU drops the bomb on the market. While there are reversal and trend revival opportunities out there; those are setups for more calm market conditions. We don’t have many trading hours left in the week; so I am taking stock of possible breakout candidates. And if we don’t get a breakout before the weekend, all the better. I think a break after reflection just increases the potential for follow through. A quick stock of those pairs I am looking at for this event. EURUSD could extend its run above 1.30; but there is a good opportunity for a steeper retracement below 1.2750. EURJPY is a consistent one with a ceiling at 113.35. GBPUSD is stations between two very large levels at 1.55 and 1.5150. CADJPY is creating short-term technical levels to work with; but the long-term and gradual rising trendline is my main concern. And, my favorite potential breakout opportunity is USDCHF on a break from 1.0550/0400 congestion following a very steep and consistent decline. A correction is long overdue.

For my currently held positions, only two survive. The remaining half of my AUDCHF short was knocked out at breakeven this morning on a delayed follow up to AUDUSD’s impressive breakout yesterday. As for the other trades, they are still floating. The CHFJPY short is highly prone to the forthcoming event risk; which is to be expected. In hindsight; I should have reduced position size ahead of this event risk when I slipped back to breakeven; but we don’t trade in hindsight. My stop is set at 84.60. As for my USDJPY long, we are stuck between 87.50 and 86.50. A bearish break will just encourage me to add to the small position size I have. Since this is for a longer holding period; I’m not too concerned about this pair ahead of the Tests.

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CADJPY · CHFJPY · EURJPY · EURUSD · GBP/USD · long · Pending · Short · USD/CHF · USDJPY

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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AUDCHF · CADJPY · CHFJPY · EURJPY · EURUSD · GBP/USD · GBPCHF · long · Pending · Short · USD/CHF · USDJPY

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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AUDCAD · AUDCHF · AUDNZD · AUDUSD · CADJPY · CHFJPY · EURJPY · EURUSD · long · Pending · Short · USDJPY

While I don’t categorize myself as a trader for any specific time frame (short-term scalping, medium-term swing trades or long-term positions), I my normal time frame makes it a risky venture to take new trades this week. The problem with taking trades that are meant to least three days to a week is that there is big ticket event risk due on Friday (when liquidity drains) which acts like a cloud over price action and works to prevent the development of a clear trend. Just think of it, would you take a large trade before high level event risk that could drive the market’s sharply against you? No. And, deeper pockets won’t do it either. Instead, we have broad congestion that is warped by high volatility with key event risk. For risk trends, the move towards pessimism seemed to begin between the Asian and European hours; but there would be a specific catalyst in the round of debt sales from European governments. I think the entire region is suffering under high yields and questionable demand; but the crowd seems to believe the Spanish and Irish sales went pretty well. The Greek auction was far more shaky; but it was the Hungarian sale that was really concerning. For more currency specific movements: speculation that the BoJ intervened drove the yen counter risk appetite trends; the RBA’s minutes fueled doubt over future policy efforts; the UK public borrowing data undermined the effort to coordinate growth and fiscal health; and the BoC has unofficially deferred the pace of future rate hikes.

Given the unusually high level of volatility and general hold on sentiment-based trends, my positioning was mixed through the day. The sharp drop in the yen on the BoJ speculation has benefit my USDJPY long position; but I would have rather seen a rally from the single currency to drive my CHFJPY short lower. Given my time frame for the latter is shorter and targets nearer, and I am in small size with USDJPY for a much longer haul, the reasoning for my preference should be clear. Interestingly enough, neither the discouraging minutes nor a general move towards risk aversion would help out my AUDCHF short.

Given my assessment of uncertainty, my list of potential positions has been whittled down. Though I would not trade it unless under ideal conditions, EURUSD is nevertheless an important pair to watch around 1.30 into the end of the week. That being said, the first opportunity to really take a position should be on Monday (provided we are given a good reading). All things considered, I think EURUSD will eventually revive its bear trend; but for an offset to this exposure, a bullish break from EURJPY above 112.75 still looks tempting. On the Aussie-side, I’m still keeping an eye on AUDCAD and AUDNZD – though the former has broken above 0.92. Finally, CADJPY has once again held its long-term rising trend support; but that may not hold for long.

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AUDCAD · AUDCHF · AUDNZD · CADJPY · CHFJPY · EURJPY · EURUSD · long · Pending · Short · USDJPY