When identifying markets to trade I always turn to my trusted currency strength meter.
Over the course of the past few weeks one thing has been certain.
The Swiss Franc is one of the strongest currencies. The Japanese yen has been one of the weakest.
My attention is firmly on CHF/JPY, but for more than one reason.
The Why?
As always I will be applying my W.C.S method to determine if there is a trading setup for us.
And with this market, there are two cases to be made.
First, the bullish one:
CHF strong and JPY is weak.
Safe haven switch, because the CHF has lower interest rates than the JPY, institutions are favouring the franc in times of uncertainty.
The fear and greed index sits in the “fear” camp despite stock markets making all time highs.
Second, the bearish case:
When the CSM reaches +5 or -5 it signals a currency is extremely strong or weak, and is susceptible to short term reversals. CHF is at +7 and JPY is at -5.
Japan’s recent economic data surprises is seeing swaps markets pricing in a 50% chance of a rate hike in December by the BoJ. 50/50 isn’t a safe bet by any means but it was 0 a few weeks ago.
The Conditions
The weekly chart is clearly in an upward trend with the price making higher highs and higher lows.
However, the weekly chart could be considered to be in a secondary phase, meaning the price is pulling back against the dominant trend.
On the right side of the screen, the H4 chart shows the price breaking into new lows. This combined with the price trading below the 50MA suggests that price could be heading lower in the near term.
We can also see a gap has formed between 187.00 highs and 185.00 lows. This gap could be a target.
The Strategy
In my rules, I can look for short-term short positions here.
I know this is a counter trend move so I will use a lower risk, and I will look to target the 187.00 level as long as the H4 trend remains intact.
If the H4 trend changes, it could be a sign the dominant trend is returning and I for one do now want to be in the way of that.
I will use my EMA strategy to get into the market and look for a break lower.
Good luck out there traders!