Day one: going long CHF/JPY

Potential strategy: buy CHF/JPY at market, with a stop loss at 113.70, and a potential target of 118.00.

Price at the time of wrtiting: 114.30.

This idea is part tactical and part technical; while I will look to buy at current levels, I will look to add when I see trend and momentum indicators become more compelling.

Tactically, I like the trade as there has been a risk-off bias through the markets, driven predominantly on fears around emerging markets. In this environment I still feel the market will prefer to be long CHF (Swiss franc) over the JPY. Switzerland runs a current account surplus of 9.6% of GDP, relative to that of Japan whose surplus is around 1.5%, and this is key.

Current accounts matter significantly in the forex market, because when sentiment falls, traders will align themselves with the currencies of countries that are net creditors to the world, and who therefore can repatriate funds back home, causing capital inflows.

I also feel the market will struggle to get too bullish the JPY, given the BoJ is still the most dovish central bank in the G10 region. Given this point, even if we do see a pick-up in sentiment this week we should still see the pair rally; looking at the price action in the pair in Q413, this was the case.

Technically the pair has found really good buying support around 113.70 (as you can see on the daily chart) and hence I choose to place stops just below here.

There is also triple divergence on the RSI (10-day), although we will need to see this metric print a higher high, so a break of 49.0 would confirm that.

Bullish divergence would also be mirrored by a cross in the MACD over the signal line and confirm momentum is to the upside.

We still need to see trend indictors confirm the bullish bias and as things stand the trend is sideways. Here I look at the seven-, twenty one- and sixty five-day moving averages, and when there is alignment, and it is headed firmly higher than this, it highlights a strong trend. This would be a significantly bullish development.

I will look to buy one contract now and look to add when the technical conditions become more favourable.

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