AUD/CHF: Avoiding the Fed's March Madness

Global markets are mixed in early North American trade as Dow, Nikkei, and DAX are higher while FTSE, S&P, and the Hang Seng are lower; not a lot of continuity either as none have had an extraordinarily high or low day. Currency markets are performing in much the same manner; ranges are dominating as investors are squaring up their positions ahead of today’s major economic event, the Federal Open Market Committee decision.

Janet Yellen’s first turn as the head of the Fed could turn out to be much ado about nothing as consensus expectations are set for another $10 billion taper of Quantitative Easing and essentially a repeat of her Congressional testimony in the press conference afterward. Sure, there may be some changes to Forward Guidance by lowering the Unemployment threshold, or perhaps even dropping it altogether a la the Bank of England’s Mark Carney, but much of that dovish sentiment has already been priced in to the market; making any hint of hawkishness an unlikely, but potential bombshell revelation.

Considering the potential for wild swings in USD related currencies due to the Fed’s March Madness, perhaps it may be wiser to look elsewhere for opportunities that are arising outside of the Fed’s influence. One currency pair in particular that has an intriguing technical set up is the AUD/CHF which recently just completed a Bearish Gartley pattern simultaneously with a Bearish Butterfly pattern (Figure 1).

Fundamentally, the AUD has been a fairly popular currency of late thanks to the Reserve Bank of Australia’s meeting minutes that indicated they are satisfied with the current economic situation, as well as broad improvement in actual data across many sectors of their economy. Meanwhile, the CHF, which typically receives strength in uncertain political environments, has eased slightly as the Russia/Ukraine fiasco becomes more certain despite its ominous tone. Much of that could change though particularly if profit taking starts to kick in for the AUD or if things heat up again in Ukraine.

If these technical and fundamental factors assert their influence the AUD/CHF could be prime for a fall with support near 0.79, and then the 78.6% retracement of AD and previous support at C near 0.7860. Resistance coalesces near D at the psychologically significant round figure of 0.80.