Bond Market Confirms Swiss Franc Strength

Last week's positive CPI news briefly pushed the indices market higher, but geopolitical developments and a threat of yet another war in the Middle East brought the market down.

Amidst the uncertainty, the Swiss franc strengthened further, as expected. However, it is worth noting that this move is not speculative. Swiss bonds are in demand, as 5-year bonds turned negative, for the first time in over 3 years.

This development means that institutions would rather hold the Swiss franc at a 0% interest rate, instead of the Japanese yen, the euro, or any other G10 currency with a notable yield. That fact speaks for the institutional assessment of the fiscal policy risk in the current environment.

The week ahead is marked by significant news, particularly the central bank’s interest rate decisions. The Swiss National Bank is expected to cut rates to zero, while the Bank of Japan may provide more clarification on the next rate hike. The FED is expected to hold steady at 4.5% and provide updated economic projections, while their counterparts at the Bank of England are also likely to hold at 4.25%.

Key News:

• Tuesday: JPY – Interest Rate, USD – Retail Sales
• Wednesday: GBP – CPI, USD – Unemployment Claims, Interest Rate, CAD – Governor Macklem Speech
• Thursday: NZD – GDP, AUD – Employment Rate, CHF – Interest Rate, GBP – Interest Rate
• Friday: GBP – Retail Sales, JPY – Governor Ueda Speech

Pairs In Focus

1. AUD/CAD

After a brief pullback, this pair has established a clear lower high, followed by a correction that has resulted in a lower low. Price action is clearly bearish, and any pullback toward the previous support area around 0.88400-500 is a selling opportunity.

AUD/CAD Daily Chart, Source: TradingView

2. GBP/NZD

This pair made a clear higher low after establishing a higher high in May (surpassing the high from April). Thus, the price action is bullish. Given the odds of the Bank of England holding the rates play into the thesis about the continued strength of the British pound.

GBP/NZD Daily Chart, Source: TradingView

The key level to watch is 2.24500, which should provide support, while the short-term target is a previous swing high at 2.27700.

 Notes:

• AUD NZD: Established a new 60 pip range, which has to be decisively broken before a new trend could emerge.
• AUD CHF: Broke out after confirming a lower high. Price action is bearish and aligned with a stronger Swiss franc.
• AUD SGD: It failed to gain bullish traction and fell back into a two-month-long range.
• AUD JPY:  Failed to gain stronger bullish momentum, but remains above 92.100 support.
• CHF JPY:  Made a new high after a bullish flag breakout. A short pullback would be unsurprising before trying to capture the long-term target at 180.
• CAD JPY: Continues the bullish momentum after rejecting support. An intermediate target remains around 107, about 100 pips higher than last week's close.
• EUR JPY: Rallied and hit the liquidity around 106.700, a minor pullback would be unsurprising after such a bullish move.
• EUR NZD: Reversed the bearish breakout and turned higher. Price action has tilted bullish, but there is a risk of a prolonged ranging period.
• GBP JPY: Overall trend is bullish, but price is struggling to break the key resistance at 196.400.
• GBP AUD: This pair made a fakeout lower, before reversing above the key level of  2.08400. It failed to establish a new high for now.
• NZD JPY: Ticked higher early in the week before geopolitical developments rallied the yen. Key support to watch below is around 85.500.

Disclaimer: Any opinions expressed in this article are not to be considered investment advice and are solely those of the authors. Singapore Forex Club is not responsible for any financial decisions based on this article's contents. We provide research and promote forex trading in Singapore, and readers may use this data for information and educational purposes only.