AUD/CHF Forex Signal: Rate Gap and Risk Appetite

Potential signal:

• I am buying above the 0.5433 level, I would be a buyer, with a stop loss at the 0.5333 area.
• The Australian dollar has been choppy against the Swiss franc, but it looks like it is ready to race higher eventually.

I'm looking at the Australian dollar against the Swiss franc. The Australian dollar has been choppy, but I'm watching this pair very closely for a whole plethora of reasons. The first one, of course, would be the interest rate differential. The Swiss franc has nothing going for it in that sense, and the Australian dollar is backed up by the Reserve Bank of Australia and its need to raise rates sometime in the near future.

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Furthermore, you have to keep in mind that this is a pair that is highly driven by risk appetite. With more risk appetite comes a higher Australian dollar against the safe-haven Swiss franc. The market is currently threatening to test the 0.54 level, and if we can break out above there, then we could go looking to the 0.56 level.

Technical Indicators and Consolidation Breakout

We are slightly above the 200-day EMA, which is a long-term barrier. Now that we've broken above it, we are trying to break out of the consolidation area that we have been in since April. This is a very interesting type of setup because you'll notice that the most recent pullback tested the 50-day EMA only about halfway through the consolidation area, and then we turned around.

That tells me that there is a little bit of momentum possibly coming back into this. That being said, if we were to break down below the 50-day EMA, then it would invalidate everything, and I think we would just continue the overall sideways action.

This is a market that I think has the possibility of moving to the upside, not only because of the Australian dollar's resiliency and the potential interest rate hikes, but the fact that the Swiss franc looks a little threatened across the FX world anyway.

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