Price action for USD pairs was fascinating today as the DXY reflected bearish momentum that saw a low of nearly 102.15 intraday. This selloff was stopped at approximately 8:30 a.m. Eastern Time when eager buyers sent it soaring, eventually over the 103.3 level. Several factors were at play here, including important European Central Bank news and expectations for new US CPI data tomorrow. I took this opportunity to trade USDCHF this morning; it went well, and I entered and exited the trade in under an hour. Below I explore my process, and why I day traded USDCHF.
In many ways, the fundamentals favor CHF: Q1 GDP growth in Switzerland was positive unlike for the US, unemployment is 1.5% lower than in the US, and year-over-year inflation is gradually climbing. However, the Swiss National Bank currently has its key interest rate at -0.75%, compared to the Federal Reserve’s 1%, which involved a 50 basis point rate hike. On top of this, both CHF and USD are historically safe haven assets, and USD has encountered recent bearish data and increased chances at volatility due to upcoming US CPI data (perhaps indirectly through today’s ECB announcements as well). Thus, I decided I felt comfortable enough to go long on USDCHF as a day trade, but not confident enough to sit in it for too long.
I felt that there were enough technical indications here to warrant a brief long position. On the 1-hour timeframe, the price moved rapidly outside the Keltner Channel walls, and met significant support in two places: the 0.972 zone and the trendline pictured. I interpreted this bearish candlestick as a hasty reaction to meeting resistance around 0.98 (a reaction that could be short lived in light of potential for USD volatility). Thus, I entered at the 0.973 level, and took profit just above the 0.978 level, since I was not confident it could break through 0.98 resistance.
Sentiment analysis also made me feel comfortable entering the position. According to A1 Trading’s EdgeFinder, recent COT data reveals 76% of institutional traders going long on USD, whereas just over 10% are going long on CHF. In contrast, less than 1/3 of retail traders are long on this pair. These are all incredibly bullish signs for USDCHF, making me feel confident in my purchase, especially as Switzerland grapples with neighboring eurozone issues and with today’s arguably banal ECB decision. However, given my aforementioned uncertainties about the pair’s fundamentals and mutual safe haven status, I still planned on an early exit.
It appeared that fundamentals may be more favorable for USDCHF bulls, which made me confident enough to enter a long position. However, I was too uncertain to hold onto it.
I utilized Keltner Channels, joint support levels, and a hunch about hasty reaction to resistance at 0.98 and USD volatility to help me decide when to enter my position.
Institutional and retail sentiment indicators weighed heavily in the favor of USDCHF bulls, which made me feel confident in entering my position for a brief period.
I took profit just above the 0.978 level since I was not confident that price action could actually break through 0.98 resistance.
Save time looking for setups with the EdgeFinder's watchlist! In a glance, see the EdgeFinder's current top buys and top sells.
Two surprises occurred this week from both central banks of Australia and Canada. Economists forecasted an unchanged discount rate, but the banks had other plans in mind. This caused a heavy positive move for AUD and CAD after reaction to the news. Here is what we are looking for in these types of pairs going […]
Over the past week, several news events paved the way of sentiment on monetary policy. Through the forest of mixed uncertainty, we can find the clearing of one asset that looks ready to take off. Gold has come back to a critical level, and it is up to smart money what happens next. EdgeFinder Analysis […]
Gold is up nearly half a percent today while USD down a third of one as of 10:18 am EST. As we wait for the upcoming and looming NFP numbers this Friday, we can assess the economic data we already have. EdgeFinder Analysis The stock market sighed in relief after the debt ceiling bill finally […]
DISCLAIMER: All comments made by TraderNick’s Forex Group, LLC are for educational and informational purposes only. All comments should not be construed as investment advice regarding the purchase or sale of any securities or financial instrument of any kind. Please consult with your financial adviser before making an investment decision regarding any securities or financial instruments mentioned by TraderNick’s Forex Group, LLC. TraderNick’s Forex Group, LLC assumes no responsibility for your trading and investment results. All information on any of the platforms utilized by TraderNick’s Forex Group, LLC was obtained from sources believed to be reliable, but we do not warrant its completeness or accuracy, or warrant any results from the use of the information. TraderNick’s Forex Group, LLC, its employees, representatives, and affiliated individuals may have a position or effect transactions in the securities and financial instruments herein and or otherwise employ trading strategies that may be consistent or inconsistent with the provided strategies. Trading of any type involves very high risk and may not be suitable for all investors. TraderNick’s Forex Group, LLC, its subsidiaries and all affiliated individuals assume no responsibility for your trading and investment result. Read our full disclaimer here