Aussie dollar looking for a bottom against Swiss franc

Alan Penny

24 May 2019

3 min read

The Australian dollar fell initially during trading on Friday, reaching towards the 0.69 level. This is a market that is worth paying attention to, even if you don’t trade it as it is such a clear barometer as to where risk appetite is moving around the world. Quite frankly, even if you are a stock trader this is a chart you should be paying attention to.

This is a barometer of risk appetite because the Australian dollar is highly levered to Asian economic growth and construction. Think of it this way: the Australian supply a lot of the raw materials to China and of course other Asian countries, and therefore if things are going well it’s likely that the Australian mineral sector and many of the other commodities will be in huge demand.

On the other side of the pair, we have the Swiss franc. This is a currency that is well known as a safety currency. In times of war, geopolitical uncertainty, and of course economic situations that cause nervousness, Switzerland is a place where money will go to. It’s a low yielding currency, representing stability and of course the well-known Swiss banking sector. When money flows into Switzerland, it’s normally a sign that people are looking to protect their trading capital.

Large range being tested

aud chf chart

AUD/CHF chart

On this chart I see a huge range that we have been trading in between the 0.69 level on the bottom, and the 0.7350 level on the top. You’ll notice that I have a couple of other lines that represent a “zone” of both support and resistance. You often see this on these huge consolidation areas, especially in cross pairs like this.

We are currently at the bottom of the support zone, and that tells me that we are really trying to break down. However, we have formed a bit of a hammer during the day on Friday and it does suggest that we are going to see a bit of a bounce. At this point though, it’s very likely that the market will run into significant resistance at the 0.70 level, as seen in the form of a shooting star this last Monday. If we were to break above there, then we can reenter the middle part of the range and go much higher.

The main take away

For me, the main take away is that we should get a short-term bounce but I think that we will see the sellers return at the 0.70 region. The alternate scenario is that we break down below the 0.69 level in the meantime, which of course is also negative. At that point the market will more than likely go down to the 0.68 handle, possibly even the 0.65 level. Either way, this is a very negative looking chart, at least until we break above the 0.70 level on a daily close. Until then, I remain cautious and I suspect that risk appetite will continue to be suppressed, not only in this market but around the world.

Written By
Alan Penny

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