After cutting out a bit too early in USD/CHF a couple of weeks ago, I’m refocused back on the pair. With another break below .9000, will the sellers remain in control?
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Fundamentally, it’s a bit cloudy as to what’s driving this pair lower, especially after another positive NFP release last week lead to further USD selling across most of its major counterparts. Based on the reaction, it looks like traders are playing good economic news as a cue to get out of the Greenback, regardless of the chances of a December or January Taper rising.
For now, I’m gonna go with that cue since select data points from several of the world’s major economies (notably Europe and China) are starting to point to a brighter outlook for 2014, or at the very least, finally out of the “crisis” territory that we’ve seen over the last few years. We also recently received news of an agreement for a budget deal that would avoid another US government shutdown situation in January; this brings a bit of certainty and positive sentiment to the markets as well.
Technically, the pair is retesting a strong support area around .8900 that was last tested and held in late October. And after the strong trends we’ve seen since the beginning of November, it would not be out of the question to think this move is out of steam; the stochastic indicator sure seems to indicate so. So, I look to short the pair on a pullback and retest of the major psychological handle, with a stop in the range of one full weekly ATR. My soft target is the recent lows. Here’s what I am doing:
Short 1/2 position USD/CHF at .9000, stop at .9150, profit target at .8850
I’m only risking 0.50% of my account on this one, and with this trade structure, I have a potential reward-to-risk ratio of 1:1. If triggered and the market moves my way, I’ll reassess and possibly adjust my target/add another position if the momentum to the downside is strong.