Overextended and Overpriced?
Updated
For now, the safe-haven demand for the Swiss franc has bolstered its strength, especially amid the recent political turmoil in Europe. But once the geopolitical concerns have subsided I think the safe-haven rally will weaken. …and with it the price, which I expect to take a natural retracement. Whether this will be enough for a bearish reversal, I do not know. But I’m looking for potential signs of weakness to cement my position.
Technically, the price is moving within the confines of a large rising wedge which in itself indicates the potential for bearish activity on the horizon but I’m not really seeing much technical divergence. The price action is currently overextended and overbought but this in itself is not a sufficient reason to sell this pair. Add to this the fact that as many as 95% of retail traders are currently net short, I believe an argument could be made for a continuation of higher prices. Any trades taken at or near all-time highs should always be taken with caution so it’s with this caution that I’ve entered a sell at 178.66 with a view to scale in positions if weakness presents itself.
Technically, the price is moving within the confines of a large rising wedge which in itself indicates the potential for bearish activity on the horizon but I’m not really seeing much technical divergence. The price action is currently overextended and overbought but this in itself is not a sufficient reason to sell this pair. Add to this the fact that as many as 95% of retail traders are currently net short, I believe an argument could be made for a continuation of higher prices. Any trades taken at or near all-time highs should always be taken with caution so it’s with this caution that I’ve entered a sell at 178.66 with a view to scale in positions if weakness presents itself.
Note
My first short just missed its TP at 177.65 and is still open.Trade 2 - pending order filled at 179.16
Whilst there is uncertainty in Europe and a reduction in jpy downside risk premium I suspect that the BoJ will refrain from intervention for now but i wouldn’t be surprised to see some reaction even as early as Friday, depending on the fundamental landscape.
I expect that current monetary policy polarisations will maintain the return of carry trades, weakening the overall demand for the Japanese currency. That being said, chf is not as supported as other main currencies in this regard; mainly usd, gbp and the euro. As a result, I’m happy to leave my positions open.
Note
Having not seen a show of strength from Japan last week on the back of negative USD news on Friday, I think the markets are testing the nerve of Japans MoF. Since ATSUSHI MIMURA replaced Kanda as the top currency diplomat at the end of June I’m starting to think that perhaps there’s a new plan for the trigger of intervention; Kanda suggested that A 4% drop in two weeks against the USD would be a sign for intervention and we’re not even close yet so I expect a continuation in yen weakness, absent a bout of much needed Yentervension! For this pair, I don’t expect any significant moves to come until either the BoJ increase rates or the geopolitical uncertainties in Europe are resolved. Or some good old fashioned Yentervension happens, which I doubt (for now).
All positions still open.
Note
Trade 3 open. Price moved into my poi - I suspect higher prices but my pending order was filled at 179.42Note
Pending order filled. Trade 4 open at 179.90Note
All positions closed at 176.66, top of previous bullish impulseNote
Profit from this trade is as follows;Trade 1 - 200 pips
Trade 2 - 250 pips
Trade 3 - 276 pips
Trade 4 - 324 pips
Total profit = 1050 pips
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