Momentum remains strong to the downside on CHF/JPY after a break of support around the major psychological level of 110.00. Is the latest bounce another opportunity to play the strong trend?
CHF/JPY Trade Setup
This is mainly a technical play that seems to be in a strong sell mode, thanks to a geopolitical fueled shift to global risk aversion sentiment. I am fundamentally biased in favor of the Japanese yen over the Swiss franc as leading indicators seem to be stronger in Japan, especially consumer confidence, and the interest rate differential also lies in favor of the Japanese yen.
From a technical standpoint, the trend lower is pretty clear on multiple timeframes, including the one hour chart above. And with this latest bounce, it looks like I can take a short-term swing position at a slight better price than a week ago. Using the Fibonacci retracement tool, the potential resistance area goes all the way up to the previously broken strong support around 110.00, which could now be resistance. And finally, the stochastic indicator is showing potentially overbought conditions.
I look to scale into a short position, starting here at the 38% Fib with a small position. My stop will be above that major broken psychological level, which also happens to be over one weekly ATR above the current market prices. My max target area is going to be the mid-2016 consolidation range between 103.50 – 106.50 for a nice potential reward-to-risk ratio. Here’s what I’m doing:
Short half position CHF/JPY at 108.90, max stop loss at 110.25, max target at 103.5 for a potential 4:1 return-on-risk. I’ll be risking only 0.5% of my account on this position and I’ll look to re-assess to potentially reduce my risk and maximize my gain if I’m triggered and the market still has strong downward momentum below the previous swing low around 107.70. If the market does continue to bounce higher, I’ll re-assess to see if adding a second position around the 61% Fib makes sense.
As always, remember to never risk more than 1% of a trading account on any single trade. Adjust position sizes accordingly. Create your own ideas and don’t simply follow what I do.