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USDCHF | AUDNZD

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Talking Points

Strong correlation between USDCHF and EURUSD presents trade opportunities

-Severe disparity in monetary policy between RBA and RBNZ

AUDNZD at historical ‘floor’

There seems a remarkable relationship between the Swiss franc and Euro. The Eurozone is Switzerland’s primary trade partner and international financial companion. This means whatever befalls the larger, regional economy typically is mirrored by the smaller landlocked country – for better or worse. From a currency perspective, this seems to support a remarkable correlation between the Euro and Swiss franc against common counterparts. For example, the correlation between EURUSD and USDCHF is close to -0.90 – meaning the two moved in the opposite directions most of the time and to the same severity.

This relationship, the outlook for monetary policy and the Swiss National Bank’s (SNB) commitment to the 1.2000 EURCHF floor significantly boost the appeal and probabilities of a USDCHF long position. Moving forward, if the franc continues to appreciate against its counterparts (as it has in the USDCHF below), the spillover would inevitably draw EURCHF down and incur an SNB response. Otherwise, looking at the traditional EURUSD (remember, assuming it maintains an inverse relationship to USDCHF); the ECB is on the path for more stimulus and the Fed is talking about the Taper. That can offer a synthetic boost to USDCHF. I will look for a long position with a first target of 1.3000 (momentum can offer a much more profound ultimate objective) with a stop on a close below 1.1500.

USDCHF and EURCHF Daily

USDCHF_AUDNZD_Changing_of_the_Monetary_Policy_Gaurd_body_Picture_2.png, USDCHF | AUDNZD - Changing of the Monetary Policy Gaurd

Both a big-picture fundamental and technical review of the AUDNZD suggest we are nearing serious turning point. Since the exchange rate was floated nearly 30 years ago, the bulk of its price action has fallen between a historical range of 1.3650 and 1.0500. While that may be half the range of the range of the USDJPY or GBPUSD over the same period, it is nevertheless remarkable for its consistency and our proximity to the ‘floor’ near the start of 2014.

There is a good reason why we have dropped so rapidly over the past few years to cover the entire range: a severe disparity in monetary policy. Though much of the world was forced to cut rate over the past five years, some move sooner and are further earlier in the upswing of the cycle. This is the case between Australian and New Zealand. The RBA extended an easing regime (interest rate cuts) through 2013, while the RBNZ changed to outright threats of an expected 2.25 percent increase through 1Q 2016. That is incredible, but both of these are likely extremes. The RBA has little room to cut further and will likely start to warn of hikes in 2014. Meanwhile, the RBNZ can’t threaten more severe movement without inflation. As we retrace fundamental and technical extremes, I like a long position with a stop in a higher time frame (weekly or monthly) close below 1.0500 as a stop.

AUDNZD Weekly Chart

USDCHF_AUDNZD_Changing_of_the_Monetary_Policy_Gaurd_body_Picture_1.png, USDCHF | AUDNZD - Changing of the Monetary Policy Gaurd

Analys från DailyFX

EURUSD Weekly Technical Analysis: New Month, More Weakness

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What’s inside:

  • EURUSD broke the ‘neckline’ of a bearish ‘head-and-shoulders’ pattern, April trend-line
  • Resistance in vicinity of 11825/80 likely to keep a lid on further strength
  • Targeting the low to mid-11600s with more selling

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Coming into last week we pointed out the likelihood of finally seeing a resolution of the range EURUSD had been stuck in for the past few weeks, and one of the outcomes we made note of as a possibility was for the triggering of a ’head-and-shoulders’ pattern. Indeed, we saw a break of the ’neckline’ along with a drop below the April trend-line. This led to decent selling before a minor bounce took shape during the latter part of last week.

Looking ahead to next week the euro is set up for further losses as the path of least resistance has turned lower. Looking to a capper on any further strength there is resistance in the 11825-11880 area (old support becomes new resistance). As long as the euro stays below this area a downward bias will remain firmly intact.

Looking lower towards support eyes will be on the August low at 11662 and the 2016 high of 11616, of which the latter just happens to align almost precisely with the measured move target of the ‘head-and-shoulders’ pattern (determined by subtracting the height of the pattern from the neckline).

Bottom line: Shorts look set to have the upperhand as a fresh month gets underway as long as the euro remains capped by resistance. On weakness, we’ll be watching how the euro responds to a drop into support levels.

For a longer-term outlook on EURUSD, check out the just released Q4 Forecast.

EURUSD: Daily

EURUSD Weekly Technical Analysis: New Month, More Weakness

—Written by Paul Robinson, Market Analyst

You can receive Paul’s analysis directly via email bysigning up here.

You can follow Paul on Twitter at@PaulRobinonFX.

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Euro Bias Mixed Heading into October, Q4’17

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Euro Bias Mixed Heading into October, Q4'17

Why and how do we use IG Client Sentiment in trading? See our guide and real-time data.

EURUSD: Retail trader data shows 37.3% of traders are net-long with the ratio of traders short to long at 1.68 to 1. In fact, traders have remained net-short since Apr 18 when EURUSD traded near 1.07831; price has moved 9.6% higher since then. The number of traders net-long is 15.4% lower than yesterday and 16.4% higher from last week, while the number of traders net-short is 0.4% higher than yesterday and 10.5% lower from last week.

We typically take a contrarian view to crowd sentiment, and the fact traders are net-short suggests EURUSD prices may continue to rise. Positioning is more net-short than yesterday but less net-short from last week. The combination of current sentiment and recent changes gives us a further mixed EURUSD trading bias.

— Written by Christopher Vecchio, CFA, Senior Currency Strategist

To contact Christopher Vecchio, e-mail cvecchio@dailyfx.com

Follow him on Twitter at @CVecchioFX

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British Pound Reversal Potential Persists Heading into New Quarter

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British Pound Reversal Potential Persists Heading into New Quarter

Why and how do we use IG Client Sentiment in trading? See our guide and real-time data.

GBPUSD: Retail trader data shows 38.2% of traders are net-long with the ratio of traders short to long at 1.62 to 1. In fact, traders have remained net-short since Sep 05 when GBPUSD traded near 1.29615; price has moved 3.4% higher since then. The number of traders net-long is 0.1% higher than yesterday and 13.4% higher from last week, while the number of traders net-short is 10.6% lower than yesterday and 18.3% lower from last week.

We typically take a contrarian view to crowd sentiment, and the fact traders are net-short suggests GBPUSD prices may continue to rise. Yet traders are less net-short than yesterday and compared with last week. Recent changes in sentiment warn that the current GBPUSD price trend may soon reverse lower despite the fact traders remain net-short.

— Written by Christopher Vecchio, CFA, Senior Currency Strategist

To contact Christopher Vecchio, e-mail cvecchio@dailyfx.com

Follow him on Twitter at @CVecchioFX

To be added to Christopher’s e-mail distribution list, please fill out this form

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