CHF/JPY doesn’t usually make it to my watchlist, but after weeks handing around 114.00, it might be time to hop in on potential volatility coming up!
CHF/JPY Consolidation Breakout Setup
As usual, let’s take a quick look at the fundies, and I gotta say things aren’t looking so bad in Japan with recent PMI data showing its fastest expansion in manufacturing in almost three years, as well a steady trend higher in consumer confidence and GDP. Things are looking good enough for the Bank of Japan to potentially upgrade its 2017 GDP forecast during next week’s monetary policy meeting. Inflation conditions are still pretty horrible, but we saw a glimmer of hope in December with a headline CPI y/y read of 0.50%.
In Switzerland, the business sector seems to be picking up as well (56.60 in Nov and 56.00 in December), but consumer sentiment (-13 in September) and inflation (Headline CPI -0.08% m/m in December) are trending lower to drag down the overall economic picture despite a recent bounces in both reads.
I think for now, I’m bullish the Japanese yen over the Swiss franc, which aligns with the interest rate differential that favors the yen over the franc by about 0.65%. It also aligns with the recent failure of CHF/JPY to stay above the 115.00, now trading lower and with the potential to resume the bigtime downtrend that the pair was on from around 134.00 in July 2015 to hitting lows around 103.50, before bouncing to current levels.
So, I’m looking for a potential break to the downside of the current consolidation pattern (symmetrical triangle forming) on the four hour chart, and the catalyst may be the upcoming Japanese inflation data early in the Friday morning Asia session, or next week’s Bank of Japan meeting.
So, I’m in watch mode for now, but ready to hop in at market if we get a big positive surprise on Friday AND the market goes into bull mode on the yen.
Stay tuned and 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.
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