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The best breakout candidates often make for the best range trade candidates. This is the situation with USDCHF. Technically, the pair is testing a dominant and highly visible descending trend around 1.17.

Why Would USDCHF Stay in a Range?   ·         Levels to Watch: -Range Top:       1.1710 (Trend, Fib) -Range Bottom: 1.1210 (Fib, SMA, Pivot, Trend)   ·         USDCHF is a great breakout candidate – but it may take some time for a trend defining move to be generated. While two trends are fast closing in on each other, this pair still has at least 500 points to move and volatility has certainly settled for the market. Should risk aversion jump, this pair has some buffer to the exposure as it is comprised of two carry currencies. However, with fear under wraps, we see two currencies that are over-extended and likely to retracement.   ·         The real stabilizer for USDCHF is the presence of the pairs two, significant trends. A six-year falling trendline has already proven itself worthy of the market’s attention around 1.1700/50. While not as mature as the downtrend, a rising set of lows from July marks an impressive level of its own. Suggested Strategy   ·         Short: Entry orders will be set at 1.1705 to maximize the risk/reward of the range.   ·         Stop: The initial stop will be set well above the Oct. 24th swing high at 1.1775. To improve risk/reward, we will move the stop on the second lot up to breakeven when target one is hit. ·         Target: The first objective equals risk (70) at 1.1635. The second target will be 1.1535.

Trading Tip – The best breakout candidates often make for the best range trade candidates. This is the situation with USDCHF. Technically, the pair is testing a dominant and highly visible descending trend around 1.17. Fundamentally, there is little impetus for the market to force a breakout in this drive to resistance. Overall, volatility has stabilized somewhat over the past week; and without a high level of activity, this pair is naturally balanced by the individual currencies’ roles in the market. Both the dollar and franc are now being treated as funding currencies (though there really hasn’t been a build up in dollar loans to force an unwinding as carry has been on the decline since US rates peaked) and each is a well-known safe haven in times of risk aversion. Nonetheless, it is always important to consider and prepare for a trade moving against you. As such, our strategy looks for an aggressive entry and allows for a relatively wide stop to counter false breaks. Our targets further compensate for the risk taken. To reduce the risk of a market shift with time, we will cancel all unfilled orders by Wednesday.

Event Risk US And Switzerland

US – Last week’s economic docket was the height of scheduled event risk for the US dollar. A Fed rate decision, third quarter GDP release and a smattering of first and second tier economic indicators marked a significant run for fundamentally-driven market activity. Moving into the new week, the high-level releases are throttled back; but there is nonetheless a number of top-tier indicators that may shape the outlook for growth and credit conditions to come. Top credits go to this Friday’s NFP release, though a tenth consecutive contraction is already fully expected. Recently, the build up in speculation has had a more lasting impact on price action than the actual release. Measuring the quick decline into recession through output figures, the ISM service sector report follows the 25-year low in manufacturing activity reported today. ICSC chainstore sales measures retail spending – an indicator that will be far more important as the holidays approach. Finally, we should not forget consumer credit. The boom through 2007 was built on credit - will it fail in its wake?

Switzerland – For the franc, event risk is less important to the currency market as safety.  This currency pulls a double duty as a safe haven in times of uncertainty (most know of the renowned security of a Swiss bank account) and as a popular carry currency. Recently, the pull back in volatility has allowed the carry trade to bounce. However, the spark in risk aversion and fear are always close to the surface. For risk the market can prepare for, there are two pieces of notable event risk on the slate. The importance of tomorrow’s CPI number has been deflated by the SNB’s participation in the joint rate cut last month. A drop in inflation is expected, and it will merely help the central bank lower rates next month during their regular meeting. Later down the line, the jobless rate will give a higher level gauge of consumer health. The economy is certainly slowing, but when will domestic spending really give way?

Questions? Comments? Send them to jkicklighter@dailyfx.com.