Taking a shot on CAD/CHF to play my fundamental biases, which could see some action very soon with the latest Canadian jobs data.
Bulls to Take Control on CAD/CHF?
Fundamentally, I’m still of fan of the Canadian dollar over most of the major currencies, due to the low odds of the Bank of Canada following its contemporaries on a monetary policy easing path, given Canada’s relative economic out performance this year. The data hasn’t been great, but it’s arguably been net positive enough (improving employment conditions & housing data, positive wholesale sales trend) to not bring up any discussions by the Bank of Canada on the need to stimulate the economy.
As far as Switzerland, we just saw a run of disappointing economic updates, including a fall in retail sales and consumer prices, as well as gloomier sentiment on the economy (Swiss KOF Economic barometer falls to 93.22 from 95.45 previous). It’s also pretty common knowledge that the Swiss National Bank is doing everything it can to defend its currency from appreciating further, evidenced by a growing foreign currency reserve on top of its negative interest rates policy.
In terms of price action, I spotted this setup on the Weekly Crosses Watch, but ICYMI, here’s a quick rundown again. We’re seeing a slow trend higher in CAD/CHF on the four hour chart above, likely reflecting the macro economic picture discussed above, but has been recently been capped around the 0.7550 area. This is likely due to recent oil weakness as the latest negative U.S.-China trade developments are putting into question future oil demand.
The pair fell lower this month, but seems to have found support around the broken resistance-turned-support area around 0.7450. This could draw in technical analysis buyers once again, especially with the stochastic not only signaling oversold conditions but also bullish divergences.
Looking forward, we’ve got the latest Canadian employment update this week to likely give this pair a volatility boost, and based on Forex Gump’s preview on the event, odds aren’t looking good for a positive update. Despite that, I’m staying bullish on this pair, but I am going to be prudent with my entry strategy and position size to limit my risk going into the event.
I’ll be scaling into the event with nibbler positions from current levels down to the rising ‘lows’ pattern, with a max stop one weekly ATR from my first entry. I’m setting a max target at two times my stop for an attractive potential R:R that could play out over the next few weeks if the market moves my way. So with that, here’s what I’m doing:
Long quarter position CAD/CHF at 0.7450, max stop at 0.7350 with 0.25% max risk, max target at 0.7650
Long quarter position CAD/CHF at 0.7400, max stop at 0.7350 with 0.25% max risk, max target at 0.7650
I’m only risking 0.50% of my account on this trade and I’ve got max potential return-on-risk of around 3.51:1 if both positions are triggered. I do look to add to this position if triggered and it does go my way, especially if Canadian employment data is positive, but of course I look to close quickly as well if a bearish scenario plays out or if oil prices weaken further.
What do you guys think? Am I being too conservative with my entry and should buy now? Let me know in the comments section below!
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