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Loonie and Franc Crosses Appeal Technically and Fundamentally

Loonie and Franc Crosses Appeal Technically and Fundamentally

2018-03-31 02:16:00
John Kicklighter, Chief Strategist

It is a rule of mine - that has grown more important in recent market conditions - that I seek out uncomplicated trade setups. This is a probabilities game; and the more variables there are to deal with, there is more that can undermine your analysis and position.

Avoiding the high profile and all-consuming themes nowadays is not easy. We have trade wars affecting the Dollar and export-dependent contries. Risk trends are a clear driver given February and March's volatility which has in turn triggered heavy moves from the Yen, Aussie and Kiwi crosses. And monetary policy seem tinder box for many. It is impossible to fully get away from the unknown, but where you can simplify the picture, you will find better probably trees.

One currency that has plenty of liquidity but little of its own traction - thereby offering a strong soundboard for a more driven counterpart - is the Swiss Franc. Looking for a counterpart that has a great technical backdrop and an active but refined fundamental cue, we are met with GBP/CHF. This pair has tentatively put in for a triple top at a long-term 50% Fib just shy of 1.35000. I'm more conservative by nature so, I'll look for a break of 1.3350/25 as a sign of conviction in a range turn. Brexit is an unknown for this pair, but it is not currently under power and is fairly easy to keep tabs on. I made a more indepth Quick Take Video on this pair.

Daily Chart of GBP/CHF

Perhaps an even better counterpart for the Franc - a currency that has potential for recovery by virtue of its collective fundamentals improving with price notably lagging - is the Canadian Dollar. Its rate forecast has impoved, the US metals tariffs were headed off and optimism is starting to bubble up out of NAFTA discussions. The recent rebound in the broad range from CAD/CHF has brought us to horizontal resistance of 0.7425. A break of this resistance alongside a fravorable CAD wind would be appealing. I'll use a 100-125 pip stop if I go in.

Daily Chart of CAD/CHF

Two other Loonie crosses to keep an eye on include the GBP/CAD and NZD/CAD pairs. The former will deal with Brexit as an anchor like all Sterling crosses, but clearing 1.8000 support would be a strong cue. Between the two, NZD/CAD is more appealing with the Kiwi adrift with technicals more readily guiding the way. That is appealing with a broad range resistance holding, a rising trend channel giving way this past week and a larger Fib setting the next progression of turn - and likely my entry point - at 0.9280.

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DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.