Risk Off Sentiment Supports Safe Haven Currencies

Jul 09 21, 10:26 GMT

Safe-havens such as JPY and CHF gained yesterday, while riskier assets which include currencies such as the Aussie and the Kiwi suffered remaining near multi-month lows as the market worries for the economic recovery on a global level tended to increase. On the flip side US stockmarkets tended to retreat as Dow Jones, S&P 500 and Nasdaq dropped, displaying the risk aversion of the market. As was expected bonds rallied and equities world-wide dropped as the fast-spreading Delta variant of COVID-19 endangers the economic recovery highlighting weaknesses with various soft spots being on display. It’s characteristic that the initial Jobless claims figure for last week rose instead of dropping as expected, reaching 373k last week, increasing worries about the tightening of the US employment market. We expect fundamentals to be the key drivers for the greenback today as high impact financial releases seem to be absent from the US.

USD/CHF dropped considerably yesterday, breaking the 0.9215 (R1) support line now turned to resistance, yet seemed to stabilise just above the 0.9130 (S1) support line. We tend to maintain a bearish outlook for the pair given its drop and that the pair’s RSI reading below our 4-hour chart, has reached the reading of 30, confirming the presence of the bears, yet at the same time it may imply that the pair has reached oversold levels and a correction higher is possible. Please note that the pair’s price action has reached the lower Bollinger band, which may also mention that it’s time for some stabilisation and/or a correction higher. Should the bears continue to dominate the pair’s direction, we may see it breaking the 0.9130 (S1) support line and aim for the 0.9035 (S2) support level. Should the bulls take over, we may see the pair reversing course and aiming if not breaking the 0.9215 (R1) resistance line.

The Aussie hits a 7-month low against USD

The Aussie and the Kiwi were in full retreat yesterday as risk aversion was more than evident in the global markets, and worries grew as Sydney tightened its lockdown measures as an outbreak of the Delta variant could get out of control. Traders tended also to worry about the adverse effects of the path of the pandemic on Australia’s economic outlook but also on a global level as Australia is an exporter of raw materials and implied that traders were more worried about slowing growth rather than an accelerating inflation. At the same time RBA’s persistence to hike rates in 2024 rather than at an earlier date tended to weigh on the Aussie highlighting the interest rate differential outlook of the Australian central bank with others, not excluding the Fed. Overall, should the current risk off sentiment continue to characterize the markets we may see AUD weakening further.

AUD/USD also dropped breaking the 0.7465 (R1) support line, now turned to resistance and is currently aiming for the 0.7400 (S1) support level. We tend to maintain a bearish outlook for the pair as long as it remains below the downward trendline formed since the 6th of July. It should be noted that the RSI indicator below our 4-hour chart has reached the reading of 30 as result of the intense selling interest of the market, yet at the same time may imply that he pair is oversold and a correction higher is possible. Should the selling interest of the market be extended we may see the pair breaking the 0.7400 (S1) support line and aim for the 0.7335 (S2) support level. Should buyers take charge of the pair’s direction, we may see AUD/USD breaking the prementioned downward trendline and aim, if not break the 0.7465 (R1) resistance line.

Other economic highlights today and the following Asian session:

Today we highlight the release of UK’s GDP rates and manufacturing output growth rate for May as well as Canada’s employment data for June, as both releases could create substantial volatility and affect the direction of their respective currencies.

USD/CHF H4 Chart