This textbook technical setup on CHF/JPY caught our eye today, and with a small chance of volatility picking up for the franc with the SNB statement ahead, it moves up the watchlist for a potential short-term play.
Before moving on, ICYMI, today’s Daily U.S. Session Watchlist looked at GBP/NZD as risk aversion takes hold of traders, so be sure to check that out to see if there is still a potential play!
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Fresh Market Headlines & Economic Data:
Upcoming Potential Catalysts on the Economic Calendar
Fed Evans speech at 11:00 pm GMT
Germany GfK Consumer confidence at 7:00 am GMT (Mar. 25)
France Business confidence at 7:45 am GMT (Mar. 25)
Swiss National Bank Monetary Policy statement at 8:30 am GMT (Mar. 25)
ECB Economic Bulletin, Euro area Money supply at 9:00 am GMT (Mar. 25)
What to Watch: CHF/JPY
On the one hour chart above of CHF/JPY, a textbook range has formed on the pair where we can see a clear sell area (just under the 118.00 major psychological level) and strong support area (just above the 116.00 major psychological level).
The pair is now retesting that major support area after a swift move from the top of the range, so the question now is whether or not this is another buying opportunity?
Well, we’ve got the latest monetary policy statement from the Swiss National Bank coming tomorrow at 8:30 am GMT, and expectations are for no changes to policy. Recent data from Switzerland has also been arguably improving (Swiss manufacturing PMI up from 59.4 to 61.3 vs. 60.0 forecast, the unemployment rate fell from 3.7% in January 2021 to 3.6% in February), and with the franc weakening in 2021, the odds are pretty low we’ll see any action from the SNB.
So, if the SNB does hold off from taking action to weaken the currency and broad risk sentiment continues to lean negative as it did today, it’s possible that we may see the recent selling momentum continue.
Watch out for a break and hold below 116.0 before considering a short position, or if the pair bounces to about 116.50 – 116.70, watch out for bearish reversal patterns before shorting as well.
If the SNB surprises the markets with hawkish commentary (an extremely low probability scenario at the moment), then it’s likely the previous support area will hold. It makes sense from that point to structure a swing / longer-term position trade to play for the top of the range, with a tight stop on the other side of support for a favorable potential return-on-risk.
This trade also makes sense if the broad risk environment swings back to positive as the yen tends to outperform during risk-off moves.