Market Analysis

Bond markets are falling. Will this boost the safe-harbour currencies?

Some investors are worried about a slowdown in the global economy. In Germany, one of the most important economic areas in the EU, and a very export-oriented market, the price on ten-year German government bonds fell below zero percent last week for the first time in two and a half years. Falling bond prices reflect the higher demand for bonds. In uncertain times, investors choose bonds from countries they consider ‚safe‘.

Then, on Tuesday, we heard that US consumer confidence fell in March and the Present Situation Index marked its lowest level in 11 months. Unlike the German economy, the US economy is very dependent on domestic consumer behavior, determining about 70% of GDP in the USA.

The demand for US bonds is also increasing. Interest prices on the 10-year US bond, for example, have been falling noticeably since mid-March. However, short-term 3-month bonds are not developing to the same extent. The three-month bond is currently more expensive than the long-term 10-year bond. This spread between the short- and the longer-term bond price is considered a recession indicator. The higher the gap between the two, the more likely a recession could be.

This search for security could also impact the currency markets, and the so-called safe haven currencies could benefit. One of the most important representatives is the Swiss franc. So, let’s examine the USDCHF currency pair.

The upward trend that has been ongoing since the end of February 2018 is still intact. In January, the market touched the trend line, but then quickly rose above it again. With two attempts, in mid-February and early March, the currency pair then tried to cut through the critical 1.010 mark but failed with both attempts.

Currently, the market could find support in the range between 0.995 and 0.990. This band may be crucial as to how the market will continue to behave.

If the bulls make a sustainable jump above the 0.995 level, the 1.001 might offer the first resistance. However, if the leap above this level is successful, there could be a third attempt at 1.010, which could also act as a resistance area. If the breakout is successful this time, the way to 1.017 could be bright.

If the bulls are too weak and the market breaks through 0.990, downwards, the long term uptrend line could be the first support for the market. If this is too weak, the area around 0.984 could provide further support. If the market breaks through here, the structural areas at 0.977 and 0.965 could offer additional support.

The MACD oscillator is in negative territory. However, this dynamic could weaken as the MACD line moves towards its trigger line.


USDCHF - daily chart. Source: ActivTrader

USDCHF Daily Chart | Source: ActivTrader 


Written by Daniel Schuetz, External Analyst


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