CHF/JPY just formed a consolidation break on the daily time frame, so are traders ready to start a fresh leg in the longer-term downtrend?
Consolidation Breakout on CHF/JPY?
The Swiss franc just saw three consecutive days of losses against the majors, forming some interesting signals on the higher timeframe charts. That includes CHF/JPY, which has been essentially consolidating between the 110.00 – 112.00 handles since the early January yen flash crash. The weakness pushed CHF/JPY to break the rising ‘lows’ pattern on the daily chart above, which could now possibly draw in price action sellers.
Fundamentally, even with the Bank of Japan meeting coming next week, I don’t see big catalysts for this pair for the rest of April. The BOJ meeting tends to be dud given that everyone expects continued ultra easy monetary policy, which is not likely to change given the weak outlook for Japan signaled by disappointing updates from leading indicators like manufacturing PMI reads. I think what could drive the pair lower is euro weakness as the euro tends to drive Swiss franc price action most weeks. Today’s weak European PMI data is likely to put pressure on the euro and franc for the rest of the month unless we get a fresh bullish surprise catalysts from Europe.
With that in mind, I’ll be going into this trade with my full position risk, but a wide stop of over one weekly ATR, just in case the BOJ surprises traders next week. My initial target will be the January lows for a solid potential R:R. Here’s what I’m doing:
Short full position of CHF/JPY at market (110.21), max stop at 112.20, target 106.20
I’ll be risking only 1.00% of my account and my potential max return-on-risk is about 2:1. Of course, I’ll look to add further to the position or adjust quickly (i.e., cancel orders, close trade, reverse trade) depending on European or Japanese data/news, or on any surprise news stories that sparks a big market reaction.
That’s it for now. 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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