By: Christopher Lewis
AUD/CHF had another bearish day on Thursday as the trading community continues to purchase Francs against most major currencies. This is a bit counterintuitive to what we normally expect, as the Franc is certainly a safety currency under normal circumstances. This pair is a great one to trade if you don’t follow it, mainly because it is a great barometer of risk sentiment as the Aussie is so heavily correlated with taking risks in the marketplace.
Recently the pair has fallen while many of the standard risk allocations have risen. There are divergences in many of the stock markets, such as in the Dow Transports versus the Dow Jones Industrial Average itself. While this isn’t necessarily 100% predictive, it is something that has to be watched, as a lot of the positive markets seem to be showing underlying weakness.
Coming back to this pair, the fact that it is falling as the rest of the world parties makes one take pause and wonder if we aren’t ready for another correction in the overall markets. The pair formed a doji on Thursday, but the close was slightly negative. The pair simply looks weak at this point. However, we are at the bottom of the recent range, and it very well could hold as support.
0.95 Or 0.99?
The doji that formed for the Thursday session suggests that we could be ready to make a decision. The candle itself is simply the expression of indecision by the market, and this normally means that we will make a sudden move shortly after. The doji is traded in a very simple manner: If it breaks to the upside, buy. If it breaks to the downside, sell.
If we get the sell signal, we aren’t looking for a meltdown. We do think however, that the 0.95 level will more than likely be visited in that scenario. The 100 day EMA is just below, so we could see that come into play as dynamic support as well. On the other hand, if we break to the upside, we could expect an attempt to reach the 0.99 level. This area has served as a resistance point to the most recent consolidation in this pair.