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Looking to take a longer-term bearish swing on the Greenback as the markets begin to price in a potential rate cut by the Fed.

USD/CHF Fib Short Play

USD/CHF Daily Forex Chart
USD/CHF Daily Forex Chart

Negative global risk sentiment picked up this week after fresh news from the weekend that Coronavirus cases were spiking outside of China. This added to the already rising fears that the Coronavirus outbreak will likely affect the global economy, and now we’re seeing speculation in the Fed futures markets that the Fed may be pressured to cut in case the outbreak affects the U.S. economy.

Of course, we won’t know whether or not that will be the case until we get there, but with the pace of spreading, I think I’m going to go with the odds of that pressure on the Fed rising and the likely pressure that puts on the Greenback. It doesn’t look like we’ve reached peak fear yet in the Coronavirus story, so I think the odds of the scenario described above are likely better than even.

Given all of that, I’m looking to short USD, and I’ll do it against the Swiss franc given the “safe haven” status traders place on CHF, and on the bearish reversal pattern on USD/CHF on the daily chart above. Check out that doji candle formed just a few days ago right around the 50% Fibonacci retracement area. This was followed by some very red candles, and it’s likely other traders are seeing this and ready to put on some shorts as well if the current themes hold.

I’m going to start with a nibbler position at current levels, with orders to short if the market pops back higher. My initial target is the major support area that held back in January, but I will re-assess to see at that point if it makes sense to hold on / adjust my plan to maximize my potential gain. Here’s what I’m doing so far:

Short half position USD/CHF at market (0.9755), max stop at 0.9875 with 0.50% risk, initial target at 0.9650

Short half position USD/CHF at 0.9825, max stop at 0.9875 with 0.50%, initial target at 0.9650

I’ll be risking 1.00% of my account if both positions are triggered, with an initial 2.22:1 return-on-risk to start. If no pullback to my higher short orders, I may look to add to the position to maximize my potential gains as long as the market themes continue to suggest a downward move. And of course, if the market themes do change, I will not hesitate to adjust / close the position if it makes sense to do so after a re-assessment.

That’s it for now. Stay tuned for updates 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.

This content is strictly for informational purposes only and does not constitute as investment advice. Trading any financial market involves risk. Please read our Risk Disclosure to make sure you understand the risks involved.