Steven Mylonas
Bottomcatcher.com
The CHF/JPY currency cross finds itself re-testing the supply zone (2) at (1) for the 5th time over the past 19 months. Each prior led to significant declines, especially in December 2018 and February 2020. What happens at this supply zone (resistance) at (2) could determine the future direction for the short to medium term (up to 12 weeks). To help us better understand and forecast what the likely outcome for these two safe haven currencies will be, we need to consider the fundamental picture. Commercial Hedgers, more commonly known as Smart Money Hedgers are heavily net short the Swiss France (CHF) AND the Japanese Yen (JPY), whilst small speculators are betting on the Japanese Yen (JPY) to advance against the Swiss Franc (CHF).
The Smart Money haven't quite reached an extreme in their exposure on both of these currencies according to last week's Commitment of Traders report (COT), which is what we look for when trying to determine a turning point.
It's worth noting that, once an extreme is established amongst the Smart Money, it is not to be construed as a buy or sell signal. It simply tells us a notable event is taking place and a change in direction is likely. From a technical standpoint for the short to medium term (3-12 weeks) a convincing break and hold above resistance (2) on a two day chart would most probably result in further upside with a first significant target area to watch out for at 11750/800 (September 2018 highs). If resistance keeps up the good work and proves too stubborn the June lows of this year (low 11200s) will most likely be re-visited during the short to medium term time horizon.
Smart Money Hedgers currently have extreme bullish exposure in the Dow Jones (DJIA), S&P 500 (SPX) and the US Dollar (USD) according to last week's Commitment of Traders report.
Bottomcatcher has made every attempt to ensure the accuracy and reliability of the information provided in this report. However, the information is provided without a warranty of any kind. Views expressed in this report may be subject to change without prior notice and may differ or be contrary to opinions expressed by Bottomcatcher.
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