Updated: Nov 12
Pfizer the company behind the latest news on a COVID vaccine have recently been in the news about a potential 90% protection against the virus. This news itself has caused stocks on a global scale to increase as investors take on a risk on environment with hopes of a cure to the chaos.
They're one of the few companies to be in final stage of testing a vaccine which could bring hope to risk centric investors.
What could this mean in the Forex world?
Risk On = Risk Currencies up, Safe Currencies Down.
Currency Strength Meter - Logikfx
The Logikfx Currency Strength Meter have started to show interest signs on that end with new vaccines developing research. We've got one of the safer haven currencies the CHF starting to dip in the last two weeks in comparison to the Euro which has showed slightly stronger signs.
Overall, our bias for EURCHF looks like a LONG.
What we need to do now is confirm this idea using the following analysis in this article.
GDP Differential Indicator - Logikfx
Overall the GDP for each economy currently in 2020 have taken a huge hit which isn't a surprise. However, with the current medical research that's taking place and lock down procedures looking to reduce infection we're seeing Europe taking a lead in forecast GDP which is bullish for our EURCHF long idea. Overall, this is great as our GDP differentials also agree with the long.
Volkswagen Stock Analysis
You can see in orange that Volkswagen recently took a huge dip in march due to COVID, but this month with the news on a potential vaccine prices surged 19%. Overall, we've found a -49% correlation with VW and EURCHF.
The recent surge actually means currently, VW is counteracting our long idea from EURCHF so for this we're on red meaning we need to wait on data to see if there's going to be any downside movement on VW if not then the idea may not be ready yet.
Gold Commodity Analysis
Gold and CHF have had a very unique relationship for some time with the Central Bank in Switzerland holding large reserves. In the past Gold had a very high correlation with the CHF due to a peg that no longer exists too so the history goes back.
Overall over the past 18 years we've seen a very negative correlation. You can see the orange line gold continuing to rise even now in 2020 but the Euro on the flip side down trending throughout. However, the new vaccine news has actually had gold take a hit in the past week which means currently the fall in gold prices suggests a potential future spike in EURCHF.
Interest Rate Differentials
Overall the interest rate differentials haven't moved at all in the past few years. The European Central bank has held interest rates at 0 for a long time to stimulate spending whereas Switzerland's Central Bank have actually chosen to reduce interest rates heavily to a negative 0.75%. Currently due to no changes in interest rates we have a neutral bias on in interest rates so we have an amber rating on this indicator to wait on the analysis.
The STOXX 600 Analysis
"The STOXX Europe 600 Index is derived from the STOXX Europe Total Market Index (TMI) and is a subset of the STOXX Global 1800 Index. With a fixed number of 600 components, the STOXX Europe 600 Index represents large, mid and small capitalization companies across 17 countries of the European region: Austria, Belgium, Denmark, Finland, France, Germany, Ireland, Italy, Luxembourg, the Netherlands, Norway, Poland, Portugal, Spain, Sweden, Switzerland and the United Kingdom."
The main reason we've chosen this index is due to it being a major barometer of European wealth. During COVID the index took a massive hit falling by over 10%, however in the past week we've broken the previous high made in June by 6%. Not yet reaching the same highs as pre-covid but we have leading signals of a potential upside move which is great for our EURCHF Long. Overall, the indicator looks like it's agreeing with the idea.
Sentiment Analysis COT REPORTS
Overall, the COT reports for the euro hedge fund position have reduced. The open interest has fallen from a positive open interest to a neutral number meaning hedge funds have started to reduce their longs which goes against our EURCHF Long. What we'll need to do is keep an eye on the EUR LONGS to see if they increase, if the pink line rises above zero this will be a great sign.
Overall, the sentiment of the market doesn't look like it's agreeing. But any early signs of euro positions increasing and CHF decreasing could see a large trend. The final conviction however is that we need to be waiting on the COT reports for a long on EUR and short on CHF. This would increase the odds heavily, until then we're not in a favourable position.
Price Chart Analysis
Technical analysis and price have started showing bullish signs with green bullish candles coming through. Price recently have reached an area of buyers coming in the past and in the last 3 months we've actually seen buyers push prices higher.
Right now what we'll be looking at is making sure fundamentals are aligning towards the upside. We have to wait on a few indicators and monitor their progress in the next few weeks before committing to the idea. Price is likely to stagnate in this area and congest until that point.
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