One good maxim when trading is to trade currency pairs that comprises a strong currency versus a weak currency, as such currency pair tend to trend very well. We have tools via our fxLabs that cater to such analysis: Currency Heatmap and World-Strength Heat Map allows traders to identity the weak and strong currencies in a glance.
Using the tools, traders would have notice that the Swiss Franc has been gaining strength the past month, losing only to USD and beating all other major currency. Today’s Swiss GDP result adds more reasons for Franc’s appreciation – Q4 GDP came in at 0.2% Q/Q and 1.4% Y/Y, beating estimates of 0.0% and 0.9% respectively. Though CHF did not react strongly to the better than expected data, a better economy will certainly help Franc to move higher. At the very least, it reduces the chances of SNB’s intervention.
Aussie, on the other hand, has had a torrid month, placing 3rd weakest currency in the month of Feb bettering only EUR and GBP which has seen much better days. So it is no surprise that AUD/CHF’s bearish direction is clear. Not even Bernanke’s positive speech could derail the bearish sentiment as seen on the hourly chart. Price rallied from under 0.95 to 0.954 post Bernanke, but immediately we saw bears taking over and pushed price back to pre Bernanke lows almost immediately. The Kumo acted as a strong resistance in this case, but was powerless to prevent a 2nd push during early Asian hours due to strong bullish sentiment which saw Asian Stocks gaining significantly (N225 +2.71%, HSI +1.96%, ASX +1.34%). Currently Kumo’s top side (Senkou Span B) is providing resistance against further upside, with Stochastic readings also reaching peaking higher despite price lower than the previous peak on 26th Feb. This suggest that rally is too aggressive and we could see a pullback soon.
Daily Chart is also bearish, with Kumo providing overhead resistance. The recent rally from 2013 lows has also failed to break the previous swing low back on 13th Jan. Stochastic has also just formed a sell signal with a Stoch/Signal cross and is now breaking below 80.0. If the signal proves to be true, price will pull down lower and perhaps even carve out a lower low below 0.938 when the bear cycle is over.
Fundamentally, there are signs of improved Swiss economic growth, which will be Franc positive. Australia on the other hand has had negative economic data coming in which increases the chances of RBA rate cut in the future. Though Glenn Stevens has came on record to state that current Cash Rate is “appropriate”, market is steadily speculating for a rate cut with Overnight Index Swap pricing in 44bps in RBA cuts within the next 12 month. This will continue to weigh AUD down, and make AUD/CHF a great candidate for the Strong Currency versus Weak Currency selection.
This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.