I happened to stumble upon this solid technical setup on CHF/JPY, and given the shift in risk sentiment, it’s an opportunity I had to take a shot at!
In the four hour forex chart of CHF/JPY above, we can see strong support at 113.00 that held between May and June breaking today. From what I can tell, it looks like we’re seeing broad risk aversion across the financial markets with new sanctions on selected Russian companies by the U.S. and European Union as the catalyst for today’s strength in the Yen. We also just got a news report that a passenger plane may have been shot down near the Russian border, potentially sparking further geopolitical fears for the next few days.
There are sentiment and technical arguments for this short, and in terms of fundamental, I’m not the biggest fan of going long Yen because their economic outlook and monetary policy doesn’t look too bright at the moment for the currency. But if I do, I don’t see a better currency to pair it with than the Swiss Franc, whose central bank is also seeing lower growth than previous thought, and trying to keep their currency and interest rates as low as possible. And for the short-term, I don’t see any big catalysts to push monetary policy in a new direction or volatility in a big way.
So, I decided to short this pair at market with a small position. My stop is a conservative one using the weekly ATR, my soft target is the 2014 lows around 112.00, and my max target is the strong area of interest last seen at the end of 2013. Here’s what I’m doing:
Short full position CHF/JPY at market (112.85), stop at 114.15, max target at 109.00
I’m only risking 1.00% of my account on this one, and with this trade structure, I have a potential reward-to-risk ratio of about 2.96:1. If I do get to 112.00, I’ll re-assess there and make a decision on reducing risk, closing out or possibly try to max out my position. Of course, anything can happen in the forex markets, so if the story changes I’ll be sure to reassess and adjust quickly if necessary. Stay tuned!