Trade Of The Day: CHF/JPY To Test Trend Resistance
Trade Of The Day: Improved risk sentiment and increased market expectations for additional stimulus by several central banks, including the SNB, have weighed on the CHF recently. Indeed, we expect this trend to continue as the CHF further corrects its over valuation. The recent CHF depreciation has fueled expectations of increased SNB FX interventions since December. In that respect, the SNB’s FX reserves (Friday) will be closely followed. The Bank of Japan shocked markets on the final trading day of January as they announced a move into negative interest rates, a move which in the words of BOJ Governor Kuroda is intended to “show people that the BOJ is strongly committed to achieving 2 percent inflation and that it will do whatever it takes to achieve it”. Despite noting the continued recovery for the Japanese economy Kuroda explained that the move is intended to combat the risks posed from the “recent further falls in oil prices, uncertainty over emerging economies,including China and global market instability”.
Trade Idea: I am monitoring the trend development in the CHF/JPY, which has been trading within a well defined down channel. Retracements of prior legs of declines have tended to terminate at the 61.8/78.6% retracement of the last leg lower. As such I am looking for the current correction to test the 120/120.50 level, I will set shorts on intraday reversal patterns at these levels looking for trend continuation, initially targeting a retest of 115 lows and 112 in extension as per the chart below.