Trade Watchlist: AUD/CHF Uptrend Setup? #21



AUD/CHF Uptrend Setup?

AUD/CHF has been a mover, and with Aussie GDP ahead, we can see potentially see another chance for the bulls to play the uptrend at a better price.

On the four hour chart above of AUD/CHF, we can a lot of action over the past two weeks where the pair spiked higher mid-February (likely benefiting from the pandemic recovery narrative) then falling sharply with all other risk assets last week as rising bond yields drove traders towards safe havens like the Swiss franc.

Yesterday, risk assets bounced once again as bond yields slipped (with the help of central bank action…the bulls thank you RBA), which included AUD/CHF as it jumped more than one daily ATR (around 70 pips) in one session from 0.7000 to 0.7100. So where to next?

Well, with bond yields still a focus for the overall markets, it’s tough to say where to next. But if they continue to trend higher as traders bet on the recovery and inflation rising, the latest bounce in AUD/CHF could be another short-term selling opportunity. And with stochastic signaling overbought conditions, technical traders may join fundamental traders very soon.

If that scenario plays out and we see the pair retest the Fibs area / rising moving averages, that could bring in the longer-term swing / position traders looking to play the recovery theme. This trade also makes sense for those looking to sell some Swiss francs, an idea that has grown over the past week as rising bond yields makes global bonds a much more attractive safe haven vs. the negative yield from Swiss debt.

So, we’re looking out for AUD/CHF to return to the 0.7000 area and see if we get bullish reversal patterns form. If so and the reflation theme continues to dominate while bond yields stabilize, that could be a setup to take for a long biased position in AUD/CHF.

What do you all think? Are you watching AUD/CHF for a potential long play? Or do you think it’s topping out and the reflation theme is overdone? Let me know in the comments section below!

What’s expected this time?

The ECB is still expected to sit on its hands for the time being, but that doesn’t mean we’re in for a non-event!

In fact, market watchers are keen to find out what policymakers have in mind when it comes to tackling the surge in global bond yields.

You see, several senior ECB members including Lagarde have already been expressing concerns about rising yields being counterproductive to their easing efforts.

ECB board member Fabio Panetta suggested a “Harder, Better, Faster, Stronger” expansion of bond purchases in order to keep borrowing costs in check, warning that the risk of providing too little policy support far outweighed the risk of doing too much.

However, there is still a lot of disagreement within the Governing Council during the previous policy meetings, enough to lead market analysts to expect no concrete action from the ECB for now.

Instead, what they might announce are more high-level commitments on how the central bank can adjust the PEPP to counteract rising bond yields while reiterating that they are “monitoring the situation closely.”

Oh, and don’t forget that another round of staff projections is due this month, too!

How might the euro react?

The lack of immediate and concrete action from the ECB might be enough to keep the euro afloat, and any significant upgrades to growth and inflation forecasts could limit potential losses.

Boosting bond purchases, on the other hand, could spark an immediate euro selloff but might benefit the region in the longer run.

In any case, better be ready for sharp moves before, during, and after this top-tier event. Here’s a quick look at average daily EUR volatility to guide you in setting entries and exits.

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