Potential signal:
- I am buying here with a stop at 199 and a target of 203.
The Swiss franc jumped against the Japanese yen on Monday, as we continue to see a well-defined range play out in this pair.
CHF/JPY
The Swiss franc has rallied against the Japanese yen during trading on Monday, as we have seen a turnaround in this pair again. All things being equal, this is a market that I think continues to see a lot of volatility and, of course, trading in the same range it's been in for a while. The 198-yen level is the floor, at the bottom, and the 204-yen level is the ceiling.
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I think at this point in time, short-term pullbacks continue to offer buying opportunities, but I also recognize that this is a market that I think continues to see a lot of range-bound opportunities just waiting to happen.
The 50-day EMA currently sits at the 201-yen level and is fairly flat, but keep in mind this range has been in effect for almost the entirety of the year, and both of these are considered to be low-yielding currencies. In other words, they are funding currencies for the carry trade.
Range-Bound Dynamics and Yen Weakness
Ultimately, I do think that we get stuck in this range, but it is worth noting that from a longer-term perspective, the Swiss franc has been very strong against the Japanese yen. And over time, I think it continues to appreciate not because of Swiss franc strength, but because the Japanese yen is so soft.
I use this CHF/JPY pair to determine what currency I wish to short against higher-yielding currencies and possibly stronger currencies. In this environment, it's obvious that shorting the Japanese yen is the way to go. We continue to see the US dollar punish the Japanese yen, but for that matter, there's also the British pound, Australian dollar, New Zealand dollar, etc.
The Swiss franc strengthening here doesn't read too much further into the forex markets. Yes, the Swiss franc strengthened against the US dollar during the session on Monday, but it is still in the process of watching the dollar take over. The interest rate differential is relatively negligible here. Technically, it's the Japanese yen that yields more, but there's so much pressure on the yen right now that I think we do eventually reach the 204-yen level over the next several
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