CHFJPY Analysis (Oct, 2022)
Switzerland has held a negative interest rate for a period of years now... very recently we've seen the Swiss Central Bank hike their rates to 0.5%. This is the first time in a years that they've peaked above negative rates.
This comes as a reactionary response to inflation which isn't that high at 3.5% but with already very high standards of living could get out of control very quickly...
Switzerland hit 3.5% inflation last month - it's highest rate in three decades - CNBC
Central banks use increased interest rates to try and make consumers and businesses spend less as it normally increases their cost of borrowing e.g. paying back mortgages, credit cards or loans.
Logikfx Technology Summary
The Logikfx technology summary page gives our users a unique quick and high level view of what's going on with the fundamentals/ macro economics behind currency exchange rates and economies.
In this case we can clearly see a strong bullish economic releases over the past month for CHF and potentially bearish data for JPY...
What's been quite interest is that all the major indicators are lining up for a bullish bias which suggests on a fundamental analysis point of view bulls look to be in control either now or soon.
Macro Currency Strength Meter
The macro currency strength meter shows us at a high level the latest economic trends for CHF and JPY.
In this case we're seeing CHF show consistent positive economic releases over the past month... this is a potentially bullish indicator as when pairing CHF up against JPY we can see that the past week JPY has started to see negative releases..
If this trend is to continue we may see CHFJPY continues its bullish trend...
GDP Differentials
The GDP differentials are normally long term lagging indicators of economic growth in a country.
In this case we can see the differentials hovering of the 0 line suggesting that potentially we may see an upswing in favour of CHF, especially considering the latest IMF forecasts for 2023 are showing a tightening gap in the growth rates.
This shows how JPY is dipping in growth rates at a much faster rate.
Trade Analysis
The trade analysis we've covered GOLD against CHFJPY as this has a negative correlation there's a strong chance that when the price of gold starts to fall, CHFJPY rises...
We can see that relationship strongly coincide with the exchange rate over the past 6 months.
Gold prices peaked in March and has since dipped significantly.
"Roche Holding AG develops and manufactures pharmaceutical and diagnostic products. The Company produces prescription drugs in the areas of cardiovascular, infectious, autoimmune, respiratory diseases, dermatology, metabolic disorders, oncology, transplantation, and the central nervous system." - Bloomberg
The pharma companies had a huge rally during the period where the pandemic kicked off.
You can see the huge bullish run it had from March 2020 to early 2022, however, we're now seeing share prices fall as COVID19 levels fall and majority countries population are fully vaccinated...
This means there's potentially less demand for the vaccine doses moving forwards excluding any boosters.
Interest Rate Differential
The interest rate differentials are in a very interesting for CHYJPY... as we mentioned earlier the interest rates in Switzerland have increased significantly breaching the long term negative rates we have seen.
Interest Rate differentials are strong indicators of exchange rate direction and between 2021 and 2022 there's been a huge bullish run...
Assuming inflation still picks up then Switzerland may need to increase rates further to combat inflation and they still have a lot of room to increase rates in comparison to other countries.
Hedge Fund Positions
The Hedge Funds are tracked through the open interest of the COT reports released by the CFTC.
What we're seeing most recently the past 2 months is open interest for CHF initially go positive, dip negative and now it is trending positive again. This suggests hedge funds are buying up CHF.
On the flip side JPY has maintained negative open interest suggesting hedge funds have been selling JPY, this creates a bullish sentiment on CHFJPY.
Price Analysis
The price of CHFJPY has been in a clear trend over the past year, although CHFJPY is reaching new highs, there could be good opportunity for breakouts or a correction with a further trend...
I would be cautious moving into 2023 and keep an eye on the main indicators with strong price signals to confirm your ideas.
