[Complete -100 pips ] AUD/CHF Trade Plan
Updated on Thursday January 30th 2025
Tuesday, February 11, 2025: This trade failed to move to profit as the CHF weakened significantly. While the CHF retained its safe-haven appeal during periods of global uncertainty , this was not enough to offset the downward pressure from the SNB's monetary policy.
Thursday, January 30, 2025: This trade continues to play but the CHF is not gaining the strength required to move this further into profit territory and thus is being evaluated for an early exit if the pair falls below its entry.
Friday, January 24, 2025: Trade continues to play out although the CHF is having a weaker time than expected. Overall fundamentals still make sense so the trade remains active.
Thursday, January 09, 2025, Week 2
As we step into the second week of 2025, the Forex market continues to be a whirlwind of activity, shaped by a confluence of central bank policies, economic indicators, and geopolitical undercurrents. The Australian Dollar (AUD) finds itself under pressure, facing a cautious Reserve Bank of Australia (RBA), a slowing domestic economy, and a strengthening US Dollar. Meanwhile, the Swiss Franc (CHF), despite the Swiss National Bank's (SNB) recent dovish pivot, retains a degree of its safe-haven allure amidst global uncertainties.
Trading involves a possibility of losing money therefore all decisions in market speculation are undertaken at your own financial risk.
AUD/CHF: Bearish Fundamentals and Sentiment
Over the past six weeks, the Australian Dollar (AUD) has faced significant headwinds due to the Reserve Bank of Australia's (RBA) increasingly cautious monetary policy stance. The RBA's decision to hold the cash rate at 4.35% and dovish signals have fueled market expectations of potential rate cuts in early 2025. This sentiment was reinforced by weaker-than-expected Q3 2024 GDP growth and a drop in consumer confidence. Adding to the AUD's woes, the current account deficit persisted, and private sector credit growth slowed. These domestic challenges and a stronger US Dollar have pushed the AUD to multi-year lows.
The Swiss Franc (CHF) has experienced a shift in its fundamental outlook. The Swiss National Bank's (SNB) surprise 50 basis point rate cut signaled a clear dovish pivot. This move, driven by easing inflationary pressures and a weakening economic outlook, has diminished the CHF's appeal. The SNB's substantial foreign exchange reserves, however, suggest a readiness to intervene if the Franc's strength threatens Swiss exports, adding complexity to the currency's outlook.
AUD/CHF: A Bearish Trajectory Amidst Diverging Central Bank Policies
The AUD's weakness is primarily driven by the RBA's cautious stance on interest rates, fueled by slowing economic growth and easing inflationary pressures. The market is pricing in a potential rate cut as early as February 2025, with a full 25 basis point cut priced in by April. This dovish outlook contrasts with the SNB's recent rate cut, which, while weakening the CHF, has not been as aggressive as the market's expectations for the RBA. The Swiss economy, although showing signs of slowing, is still perceived as more stable than Australia's, further contributing to the AUD/CHF's decline. Trading Economics forecasts the AUD/CHF to be priced at 0.56036 by the end of this quarter and at 0.55652 in one year, reflecting the bearish outlook for the pair.
The Commitment of Traders (COT) report, while not providing specific data for the AUD/CHF pair, offers insights into the broader market sentiment towards the AUD and CHF. As of the latest reports, leveraged funds have significantly reduced their net long positions in the AUD, indicating a shift towards a more bearish outlook on the currency. This aligns with the negative sentiment driven by the RBA's dovish stance and weak domestic data. For the CHF, the COT report showed a notable increase in net short positions held by leveraged funds, suggesting growing bearish sentiment ahead of the SNB's rate decision. However, the CHF's safe-haven status and the SNB's willingness to intervene in the market to curb excessive appreciation could provide some support. The divergence in positioning between leveraged funds and asset managers in both currencies suggests a degree of uncertainty and potential for volatility in the coming weeks.
Upcoming Key Economic Indicators and Their Potential Impact
10-Jan-2025: CH Unemployment Rate DEC: A stable or lower unemployment rate would reinforce the view of a healthy labor market in Switzerland, potentially supporting the CHF. An unexpected increase could raise concerns about the Swiss economic outlook and put downward pressure on the currency.
14-Jan-2025: AU Westpac Consumer Confidence Change JAN: An improvement in consumer confidence could provide a much-needed boost to the AUD, signaling stronger domestic demand. A decline would further reinforce the bearish sentiment surrounding the currency.
14-Jan-2025: AU Westpac Consumer Confidence Index JAN: A higher index reading would indicate stronger consumer sentiment, potentially supporting the AUD. Conversely, a lower reading would add to concerns about the economic outlook and put downward pressure on the currency.
16-Jan-2025: AU Unemployment Rate DEC: A stable or lower unemployment rate would reinforce the view of a relatively tight labor market, potentially providing some support to the AUD. An unexpected increase could further weaken the currency, adding to concerns about the slowing economy.
Thesis: Based on the current data and market sentiment, the AUD/CHF pair is a strong candidate to be sold. The RBA's dovish stance, weak domestic economic data, and concerns about China's economy are weighing heavily on the AUD. The CHF, while weakened by the SNB's recent rate cut, retains some safe-haven appeal and benefits from a more stable economic outlook. The divergence in monetary policy between the RBA and the SNB, coupled with the bearish sentiment towards the AUD, creates a compelling case for selling the AUD/CHF. The potential for further RBA rate cuts and the uncertain impact of US trade policies under the incoming Trump administration will likely continue to weigh on the AUD.
Trade Plan: Executing a Short Position on AUD/CHF
The AUD/CHF pair presents a strong sell opportunity due to a bearish AUD outlook and a relatively stronger CHF. The RBA's cautious rate stance contrasts with the SNB's less aggressive than expected rate cut. Weak Australian data and concerns about China and US trade tensions further weaken the AUD. The CHF retains safe-haven appeal despite SNB easing.
Upcoming economic indicators, such as Australia's Balance of Trade and Westpac Consumer Confidence data, could provide temporary volatility but are unlikely to change the overall bearish trend for the AUD. The RBA's next policy meeting in February 2025 will be a key event to watch, with the market pricing in a potential rate cut. The SNB's actions and communications will also be crucial, particularly regarding their willingness to intervene in the foreign exchange market to manage the CHF's value.
Entry Level: A suitable entry point for a short position could be around 0.565, close to the current market price.
Stop-Loss Level: A stop-loss order could be placed at 0.585, which is 200 pips above the entry level. This provides a reasonable buffer to protect against unexpected upward movements while still adhering to prudent risk management principles.
Profit Target: A potential profit target could be around 0.5600, a level that aligns with recent price action and represents a minor support area.
Extended Profit Target: A longer-term profit target could be around 0.5500, a level last seen in early August 2024. This target is more ambitious but still within the realm of possibility, considering the fundamental factors weighing on the AUD and the potential for further RBA easing.
This trade plan carries a high conviction level of 8/10 based on the current analysis. The combination of a dovish RBA, weak Australian economic data, a relatively stronger CHF, and a bearish technical outlook for AUD/CHF creates a compelling case for a short position. However, it's crucial to monitor upcoming economic data releases, central bank communications, and geopolitical developments, as these could impact the trade's trajectory. The potential for increased volatility around the RBA's February meeting and the inauguration of the new US administration warrants caution.
Key Points:
Monitor RBA Communications.
Watch Economic Data.
SNB's Next Move: While the SNB has recently cut rates, their future actions will be important. Watch for any comments from SNB officials regarding their assessment of the economy and the CHF's value.
Global Risk Sentiment: Geopolitical events, particularly any developments related to US trade policy under the incoming Trump administration and tensions in the Middle East, could impact safe-haven flows and influence the CHF's performance.
China's Economic Performance: Given Australia's close trade ties with China, economic data releases from China will be important for gauging the outlook for Australian exports and the AUD.
Sources
Australian Bureau of Statistics, Reserve Bank of Australia, Swiss National Bank, Bloomberg, Reuters, Trading Economics, ForexLive, LMX Labs LLC.