Still on my bullish Japanese yen bias, this time against the Swiss franc as CHF/JPY breaks a major support area and consolidation pattern.
Consolidation Break-and-Retest on CHF/JPY
A consolidation break and retest setup doesn’t get much cleaner than this with CHF/JPY moving below that major support area between 110.00 – 110.50 with strong momentum in the past week. This breaks the range that the pair has been in since mid-March, trading between 110.50 – 112.00.
Risk-off vibes are back as a big driver as geopolitics continue to be a concern for traders, whether it’s the continued potential trade war story between China and the U.S., or nuclear program developments in North Korea and Iran. Whatever the case may be, global markets have been a little bit spooked with equities seeing more days in the red in recent sessions and global bond yields falling as safe haven bonds are more in demand.
This market environment usually benefits the yen over the rest of the major currencies, including the Swiss franc, which it does also have a yield advantage over as well. This is likely one of the biggest reasons why we’ve seen the Japanese yen gain on the Swiss franc with CHF/JPY dropping from just above 118.00 to current levels around 109.00 in just the past two months. And it could continue going forward with not only geopolitical uncertainty driving markets, but economic uncertainty as well as global leading indicators like the ISM’s PMI read for April pulling back from historically high ranges.
With that in mind, I think risk-off is here for the short-to-medium term, and playing it through CHF/JPY makes sense. But now that we’ve already seen a break of the major support area around 110.50, I’m looking for a retest of that area before shorting. I’ll place my orders there, and my usual stop will be around the weekly ATR to limit my risk. My initial target will the major swing low that brought on a bullish reversal back in April of 2017. Here’s what I’m doing
Short half position CHF/JPY at 110.50, max stop loss at 112.50, initial target at 108.00
I’ll be risking only 0.5% of my account on this position and as usual, I’ll look to maximize the trade by keeping the trade open and adding to my position/roll stop down if 108.00 fails to draw in buying support.
Looking ahead, not many top tier economic events for either the franc or yen in May, but geopolitics and macro economic developments will still likely be a driver, so I’ll keep an eye on those developments and make adjustments if necessary.
Stay tuned for those 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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