Forex Trade Idea: 2014-06-11
It looks like AUD/CHF shot to the moon before giving me a sec to recover and hop back in after last week’s wild volatility. Fortunately, GBP/CHF offers similar opportunities of both fundamental support and a pretty technical setup.
Despite some weakness in May’s economic data, the U.K. continues to be one of the few major economies to be on the upside of recovery, or in other words, the prettiest house in an ugly neighborhood. Fortunately for Sterling bulls, we saw from Forex Gump’s economic round up that business investment and household consumption is up, and inflation ticked slightly higher. While this isn’t cause for Pound pairs to rocket higher, I think it’s enough to argue for support on pullbacks.
On the other side of the coin, the Swiss Franc has been in a broad selloff ever since hints of an ECB rate cut came out, prompting traders to reposition on the possibility of intervention from the Swiss National Bank to defend the 1.2000 floor on EUR/CHF, or even raise it, if the ECB cut rates. Now that we got the rate cuts, I’m thinking the odds are for the Franc to remain under pressure for now, especially since we’re seeing cracks in Switzerland’s own economic armor.
Technically, GBP/CHF has been grinding higher since March 2013, so the trend is with Sterling on this one. 1.5100 is a previous major resistance level, and with the pair falling lower after testing it in May, a further reversal may be in the cards to give me a chance to play the uptrend at a better price.
So, if the pair does retest the major psychological level highlighted on the chart, I will buy with a modest 150 pip stop. My first position re-adjusment level is a full weekly ATR move from my buy level, where I’ll re-assess and decide whether it’s time to take profit or press it more to maximize my profit. Here’s what I am doing:
Long half position at 1.5000, stop at 1.4850, initial target of 1.5200
I’m only risking 0.50% for now and this initial trade structure gives me a 1.33:1 potential return-on-risk. Of course, if the market themes suggest a further move to the upside, I’ll look to scale in and trail my stop to maximize my profit potential. That’s it for now…stay focused and stay tuned!