The Yen’s safe haven premium has been on the rise amid concerns about the Covid situation in Asia, China’s regulatory crackdown on tech stocks (the Hang Seng Tech Index is down by over 40% since its high in February), and the woes of Chinese property developer Evergrande. Regarding the latter, this is being viewed as a possible ‘tip of the iceberg’ by more pessimistic analysts who have had long-held concerns about the risks of a major debt crisis in China as a consequence of economic slowing and massively overleveraged property market.
USDJPY has remained heavy after posting a one-month low yesterday at 109.11. AUDJPY has also remained heavy, having drawn back in on Wednesday’s three-week low at 79.82, while EURJPY has printed a new three-week low. Share markets in Asia have continued to sputter, while stock markets in Europe and North America have fared better.
The Swiss Franc on the other side, has proven insufficient to hold safe haven flows as a dramatic decline of CHF has been seen against all majors. The sell off was seen after the Swiss Seco stated that recovery sees temporary loss of momentum. Switzerland’s State Secretariat for Economic Affairs (SECO) said it has lowered its growth forecast (adjusted for sporting events) to 3.2% for this year, rising to 3.4% in 2022. Seco said “the economic recovery is set to continue as expected, though growth is initially less dynamic than forecast previously”. The SNB already signalled that negative rates remain necessary to keep the currency under control and today’s forecast revisions will add to the arguments for an unchanged policy announcement next week.
In the aftermath of the SNB and as markets overestimated the risks to the global growth outlook and it seemed as though investors took that to heart, CHFJPY has been seen in an aggressive sell off with the asset bottoming so far to 118.12 lows which implies more than 4-month lows. However from a technical perspective this move represents a decisive breakout of the 200-Day SMA, the 50% Fib. retracement from March to June upleg but also the retest of the 61.8% Fib. level. As soon as the 200-day SMA broke we have seen lots of sell-stops being triggered, extending the asset to 118.12. As momentum indicators in the medium term are also suggesting that the negative bias is increasing, next immediate Support level for the asset could be seen at April’s low, i.e. 117.50. Should selling forces strengthen below the latter, the 2021 low of 115.90 could next add some footing on the broader bearish outlook.
Alternatively, a turn back above 119.50, i.e. 3-months Support now seen as nearby Resistance, could brighten the short term view.
In brief, CHFJPY is facing an increasing bearish bias, where a bounce from current lows could just provide a near term correction for the aggressive selling interest seen so far in September.
Meanwhile, selling pressures continued to drive Asian yields higher, with Aussie and NZ rates jumping 5 bps after much better than expected New Zealand GDP numbers and an unexpected decline in Australia’s jobless rate
NZDCHF, H4
Kiwi has been seen rising against the widely weaker CHF, breaching the 0.6570 level, key resistance seen since May. The trend is similar to the movement of other pairs against the NZD, with a strong upward move since the end of August. The sideways move the past two weeks is now looking like a breather before the asset’s next boost higher. As the asset retests today the confluence of 4-month resistance and 61.8% Fib. level of the downleg seen from 0.6765 to 0.6235, a close above this level anytime soon could strengthen buying pressure.
The continuation of the positive medium term outlook is also being supported by Bollinger bands as the BB lines extend higher, while MACD lines and RSI are positively configured, with RSI at 65 pointing northwards and MACD lines rising as well. Hence on a decisive breakout of 61.8% Fib. level, attention could turn to the 0.6625-0.6645 area.
Click here to access our Economic Calendar
Andria Pichidi
Market Analyst
Disclaimer: This material is provided as a general marketing communication for information purposes only and does not constitute an independent investment research. Nothing in this communication contains, or should be considered as containing, an investment advice or an investment recommendation or a solicitation for the purpose of buying or selling of any financial instrument. All information provided is gathered from reputable sources and any information containing an indication of past performance is not a guarantee or reliable indicator of future performance. Users acknowledge that any investment in Leveraged Products is characterized by a certain degree of uncertainty and that any investment of this nature involves a high level of risk for which the users are solely responsible and liable. We assume no liability for any loss arising from any investment made based on the information provided in this communication. This communication must not be reproduced or further distributed without our prior written permission.
