CHF/JPY Eyes 2017 Highs
Faraday Research | Sep 24, 2017 01:21AM ET
As we approached the end of this week, the risk events we had flagged were Theresa May’s speech and elections within Germany and New Zealand. Yet events surrounding North Korea have escalated once more, with Kim Jong Un labelling Donald Trump “deranged” and a top North Korean official ‘predicting’ North Korea will consider testing a hydrogen bomb of an “unprecedented scale” this weekend. Surely enough, the flight to safety ensued once more, and we have another risk event added to the list which can muddy the water for our technical framework.
On a purely technical basis, we had flagged CHF/JPY as a potential long, yet the above events now put this on the backburner until next week. So, for now we’ll analyse the cross in hope that it can return to our watch list once more.
Since the June low, CHF/JPY has seen two bursts higher and provided a bullish engulfing candle above the 115.33 high. This makes the daily trend technically bullish and we await a suitable entry signal once risk events are behind us. At the time of writing, the cross holds above 115.33 support and presents a potential bullish flag. That yesterday’s bullish hammer respected 115.33 as support suggests demand remains firm near the highs. Ideally, we’d like to see price continue to hold above support and continue to compress so we can seek a bullish setup some-time next week.
But there is every chance the technical picture may sour by the time we return on Monday. With the Swiss Franc sharing a strong correlation with the Euro, it is vulnerable to any surprise defeat for Angele Merkel at this weekend’s German election. Although the polls have pretty much confirmed a smooth victory for the German Chancellor, the surprise vote for Brexit and presidential victory for Donald Trump serve as recent reminders that shocks do indeed occur, regardless of what polls may otherwise suggest. If a shock defeat is to ensure, we could see a weakening of the Euro which could drag the Swiss Franc down with it.
Furthermore, we are headed towards another weekend where safe havens could find themselves in demand. And finally, Donald Trump is yet to respond to North Korea’s retort. Put all of this together and we have enough fuel to destroy the technical setup before or even after the weekend.
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If we are to see a break beneath 115.33 there is a potential zone of support beneath 114.66-114.85 which may soften the blow for further downside. Yet beneath here, the daily timeframes look less appealing and traders would already be eying the 113.73 low of the bullish engulfing candle.
Price action at the beginning of next week is key to determine if it still fits without our technical framework. Should key areas of support hold and volatility on the daily timeframe remain relatively low, we would want to see bullish momentum return on the hourly to break out of a flag or resistance level before considering a long position.
Yet if we are to find volatility has risen notably and prices have moved swiftly lower, it would likely be removed from our watchlist until the daily trend becomes our friend once more.
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