We have seen GBP/CHF Trade sideways in low volatility for a few months but this could all be about to end with a downside break In terms of the Russia Ukraine conflict if we get more escalation the GBP will fall on the safe haven CHF. Logic of the trade outlined below...
Russia Ukraine Escalation
“Russia has said that Ukraine’s use of long-range ATCAM missiles against its territory marked a “new phase of the Western war” against Moscow, and has said it will react “accordingly.” (ALJAZEERA) We will have to wait and see what Russia does but assume there will be retaliation.
The mainstream media see this escalation as a good move but keep in mind, the missiles will be directly controlled by NATO personnel as would Storm Shadow, Taurus, and Scalp missiles if used. Russia has already said that this will put NATO personnel in direct conflict with Russia.
Look to Buy Safe Haven CHF
The European currencies are the most vulnerable and we would expect the safe haven CHF to gain strength on its safe haven status. Even if geo-political risks don't escalate the GBP has little upside and plenty of downside due to speculative positioning.
Sentiment
If we want to work out the speculative positioning in GBP/CHF we need to look at how speculators are positioned in USD/CHF and GBP/CHF to get the cross data. Below is data from the CFTC Net Traders Positions.
In terms of the cross GBP/CHF, this means speculators are heavily long the GBP, while "smart money" commercials are short. In our Members center, we express the cross as a simple ratio, and any divergence of +10 we consider as a potential trade in favor of the commercials...
In terms of speculators, they hold 9 to 1 in terms of longs over shorts and commercials, hold 5.4 to 1 in terms of shorts over longs which gives us a divergence of 14.4.
We may not get an escalation from Russia in response to missile attacks but they have said they will so the odds are high of them doing so which means the CHF will rise on the GBP. The key levels of support and resistance to look out for on the chart below.
Technical Analysis
EUR/USD is a little oversold in the short term so we may get a bounce but it won't be sustained and we see far lower prices - The eurozone is a car crash and while it has seen a big move down we see far more downside to 1.000 or even lower- any bounce is a selling opportunity...
Read more: EUR/USD Analysis and Outlook Trading Big Bear Trends
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At present we are focused on the "Trump trade" in terms of a stronger USD which has worked well but what if it were to end and we move to risk on? The JPY would probably correct to the upside against the US but risk currencies would correct more and it's worth looking for an upside breakout in AUD/JPY...
Read more: AUD/JPY Outlook and Forecast - Best Yen Cross Trade
EUR/USD Analysis ECB Preview
In terms of EUR/USD we have the ECB tomorrow and see limited upside and plenty of downside potential in the pair. Our view of the fundamentals sentiment and technicals below
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Read more: AUD/USD Far More Downside as Commodity Exports Slow
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Read more: EUR/USD Outlook Analysis Limited Upside and Major Downside
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