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AUDCHF Analysis Update (June, 2021)

AUDCHF was a position on April 2021 for one to keep an eye on as it approached a heavily overbought area on a fundamental basis but also on a technical price trend. We had the idea that there was bearish sentiment and economic data suggesting that uptrend was in for a reversal.

It's been nearly 3 months since that idea which has started it's small down trend but will it be a fake reversal? Lets find out.

Macro Currency Strength Meter Overview

Macro Currency Strength Meter
Macro Currency Strength Meter

Overall, on our macro currency strength meter the past month or so has been hovering a neutral to bullish move for AUD. On the flip side CHF has also been very bullish in terms of the macro fundamentals. This is quite a neutral stance which is a huge shift from the original bearish sentiment for AUD.

This to me is early signs of a potential congestion/ continuation if economic data for AUD continues to strengthen.

The overview in blue on the right shows that overall only 1 indicator shares a bearish outlook which is the long term lagging indicator GDP growth rate differentials. The rest are either bullish or neutral.

This means for me I may actually start to scale out the position to breakeven level so that I can run the trade risk free if data shifts bearish in the future.

If you're interested in using the currency strength meter in your own analysis, unlock all 23 currencies on our pricing page.

GDP Growth Differential Indicator

GDP differential indicator, throughout the rest of 2021 Australia (AUD) was expected to outgrow Switzerland (CHF) in terms of economic output. This is actually a bullish sign for this year... 2022 however we can see AUD take a steeper forecast in comparison to the CHF.

Although, one factor to take into account is that these forecasts can change especially with growing economic output, monetary and fiscal policy affecting various countries simultaneously right now.

Trade Analysis (Imports/Exports)

AAL a large coal mining company has a strong positive correlation to various AUD pairs, main reason being that the AUD is a commodity based currency. This means the prices of certain commodities that they export heavily impact their exchange rate.

What we've seen in the past few weeks is AAL Coal take a major dip, it's started to meet highs only seen in 2011 which saw a huge down trend for 10 years!

If this is a repeat of history we may actually be in for a really nice long term trend for our trade we had back in April.

Overall, the prices of gold show an interesting sign for investor sentiment and right now it's saying investors have fire in their eyes.

They're risk on!

The sell off in gold prices show that investors are willing to move away and sell their safe holdings and potentially buy riskier assets and thus riskier currencies like AUD. This might translate to an spike up in AUDCHF.

These early signs show that the market is really treading on thin ice and that they may be waiting on a specific catalyst to short or long AUDCHF because right now... it's looking very neutral and indecisive.

Hedge Fund Sentiment - Bullish

The hedge fund sentiment of AUDCHF is looking very interest right now.

What we saw early in the month is that CHF positions were starting to be sold off after hitting a negative open interest shown in the dotted line crossing zero.

On the flip side, AUD has maintained quite a strong sentiment.

The increase in short positions on hedge funds for the CHF could potentially indicate that right now selling into the market may not be the best thing to do considering you may be trading against heavy volume from the big boys.

Ideally, the scenario you'd like for COT is the open interest of the solid blue line to be going up and the dotted line to continue to go down and into the negative region for a long.

For a short we'd want the opposite, so if I was to hold my position for the long term I'd want the solid blue line instead to be falling and the dotted line to increase.

Right now, sentiment is bullish and we may see a pullback in my short idea from April 2021.

Price trends

These were the prices levels shown in April 2021 after a large uptrend since the start of the year pullback or potential reversal looked likely.

Prices now are showing interesting signs... prices since April have fallen quite significantly. However, with the fundamental data suggesting a potential short term bullish move could we be in for a fake reversal and prices continue to trend up?

Only time will tell and the data to support it!

Right now, I'm starting to scale back to make this a risk free trade and let this position run to see how fundamental data shifts in the future.

If you'd like to conduct similar analysis using the tools and macro fundamental analysis, take our beginners forex course to kick start your fundamental analysis of the markets and combine it with the technical knowledge you've gathered over the years.

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