Converging Trends Offers Strong USDCHF Range Boundaries

Daily Forex Technicals | Written by DailyFX | Oct 31 08 02:10 GMT |

Why Would USDCHF Stay in a Range? Levels to Watch: Range Top: 1.1490 (Fib, Pivot) Range Bottom: 1.1125 (Fib, SMA, Pivot, Trend) On a higher time frame, we can see USDCHF has been wedged between two major trends. A general downtrend built over the past six years is repelling the dollar's drive from the past three months. If volatility and fear were at their peaks (like they were earlier this month), the threat of a breakout would be too great. However, since volatility has settled, this is pair made of two safe havens and interest rates are less of a factor here; the range will very likely hold for the time being. Technically, the higher time frame charts show USDCHF is holding in a very significant range of trends between 1.12 and 1.15. Cycling down to the short-term to find a setup, support near 1.1225 is strong with a 50% fib, a 50-day SMA and rising trend. A notable pivot and fib set 1.15 near-term. Suggested Strategy Long: Entry orders will be set at 1.1250 to take advantage of the rising trend. Stop: The initial stop will be set well enough below the recent swing low at 1.1175 to account for the rising trend in lows - though this won't hold under a jump in volatility. Target: The first objective equals risk (75) at 1.1325. The second target will be 1.1400. Trading Tip - Over the past couple of week's the USDCAD has been a frequent range trade candidate, and it certainly offers greater potential now with volatility pulling back and major event risk past us. Fundamentally, this pair is well suited to hold its ground even though volatility threatens to rear its ugly head. Keeping the pair in line, both currencies are considered safe havens in times of panic, each has its funding currency status in the carry trade and big theme data has been tempered over the past week. The chart setup is where confidence really comes into play. This pair has been forced between two converging trends - a six-year descending line and the general dollar appreciation over the last three months. These are significant levels that should hold up as long as volatility does not spike again. At the same time, our near-term resistance is not as significant as the 1.17 (where the dominant trend is now hovering). Therefore, our strategy looks for a long setup, though a short could be successful as well. Despite the potential of this setup, we need to consider the apex (breakout) of the large wedge comes closer every day. Therefore, we will cancel all orders before the market closes for the weekend. Event Risk US And Switzerland US - After a very active week in terms of fundamentals, the US economic docket looks to settle for much of the coming week. There are a number of usual market movers spread out over the period, but the market's focus on high level fundamentals (the influence of the financial crisis on risk aversion, the approach of recession, and the level of interest rates when markets settle) will likely dampen the response to this data. The greatest potential for market reaction comes next Friday with the NFPs release. With the economy already one foot into recession, the consumer sector will determine whether it will be a deep/shallow and lasting/temporary contraction. The manufacturing and service sector activity surveys will be important for similar reasons; but as they are not key drivers of growth trends, their importance will likely be downplayed. Switzerland - With volatility settling, the franc's reaction to risk appetite is likely to produce less dramatic fluctuations in price action going forward - though the potential for another surge in fear could easily revive that correlation. Nonetheless, with the dollar offsetting safe haven flows, we have an added layer of protection. For scheduled event risk, data is just as evenly spread over the Swiss docket as it is the US list. The KOF is a historically ignored report, though it may find greater interest when recession is such a hot button topic. The same may be said for the SVME PMI reading and employment data. An interest release to watch will be the October CPI numbers. The central bank hasn't admitted to a dovish stance, though they joined in on the coordinated rate cut; so we will look for support from the data to see if this will be the case going forward. DailyFX Disclaimer Investment in the currency exchange is highly speculative and should only be done with risk capital. Prices rise and fall and past performance is no assurance of future performance. This website is an information site only. Accordingly we make no warranties or guarantees in respect of the content. The publications herein do not take into account the investment objectives, financial situation or particular needs of any particular person. Investors should obtain individual financial advice based on their own particular circumstances before making an investment decision on the basis of the recommendations in this website. While we try to ensure that all of the information provided on this website is kept up-to-date and accurate we accept no responsibility for any use made of the information provided. All intellectual property rights are the property of Daily FX. Daily FX and its affiliates, will not be held responsible for the reliability or accuracy of the information available on this site. The content herein is provided in good faith and believed to be accurate, however, there are no explicit or implicit warranties of accuracy or timeliness made by Daily FX or its affiliates. The reader agrees not to hold Daily FX or any of its affiliates liable for decisions that are based on information from this website. Daily FX highly recommends that before making a decision, the reader collects several opinions related to the decision and verifies facts from at least several independent sources.