Technical Analysis: Weak Bullish Momentum

EUR/CHF has been trading sideways for the past few weeks since August 28, mainly moving between 0.9603 and 0.9526 according to the daily timeframe. Currently, the price is approaching the last distribution zone on the 4-hour chart, which is around 0.95800-0.95950. We could anticipate a retest of this zone followed by a potential move lower. Moreover, the bullish momentum appears quite weak, with six bullish candles failing to cover all the previous four bearish candles.

Fundamental Analysis: The latest ECB’s Stance, from hawkish to dovish

During the ECB’s meeting last week, they decided to raise their interest rate from 4.25% to 4.50%. However, their statement suggests that this may mark the peak rate for the time being, signaling a somewhat dovish tone. This decision has resulted in a decline in the euro’s value. Furthermore, the ECB has revised its economic forecasts downwards, including projections for GDP and inflation in the coming years. It’s important to note that the overall sentiment regarding this rate increase leans toward a dovish stance, indicating that this might be the last rate hike the ECB implements for now.  

On the other hand, this week, we are expecting the SNB (Swiss National Bank) interest rate decision, which falls on Thursday. Markets are anticipating another 25 basis points hike by the SNB. According to the latest research from RBC, they are also suggesting going long on the CHF on dips, particularly considering long positions on CHFJPY and USDCHF, as well as short positions on EURCHF.

Insights Behind the Scenes: Unveiling Crucial Data for Traders:

Becoming a proficient trader requires more than just relying on technical and fundamental data; insight into real market dynamics is vital.

DXM: Decoding Retail Traders’ Sentiment

The DXM, or “Dump Money Index,” is a valuable tool for gauging retail traders’ sentiment. It quantifies the percentage of retail traders holding long or short positions in each market. Currently, a substantial 58% of retail traders hold long positions, indicating a contrarian signal that may offer potential advantages for those considering reverse trades. It’s noteworthy that statistics show that 95% of retail traders sustain losses over extended periods, underscoring the value of contrarian strategies.

Seasonality in EUR and CHF Futures: Summer Trends

Seasonality analysis predicts future price movements based on historical data. For EUR, seasonal analysis suggests that the pair is likely to maintain a bear market until October 2023 then a slightly bull market, and continue a bear market until the end of November 2023.

For CHF, seasonal analysis suggests the pair is likely to maintain a sideways market until end of the September.

However, please note that seasonality doesn’t consider new developments or economic changes; it’s a pattern that can evolve and isn’t infallible.

COT Data: Hedge Funds & Leverage Funds Positioning

The Commitment of Traders (COT) report, issued weekly by the Commodity Futures Trading Commission (CFTC), provides insights into positions held by large traders, such as hedge funds and investment banks.

Currently, hedge funds hold approximately 59.5k short positions in EUR, while CHF has around 9.9k long positions. This data suggests that hedge funds have a neutral bias on both currencies. But keep in mind that, it’s crucial to consider the broader context to determine which currency is stronger based on current fundamentals.

Summary: All Signs Point to a Short EUR/CHF Position

• Technical Analysis: Weak bullish momentum.
• Fundamental Analysis: Dovish ECB and potential hike from SNB.
• DXM: Most retail traders hold long positions on the EUR/CHF.
• Seasonality Analysis: Seasonal patterns suggest continued EUR bearishness until end of the November.
• COT Data: COT data indicates that big players slightly favor the Swiss over the Euro.

Trade Recommendation: Short EUR/CHF Position

Entry: Sell-limit @0.95800

Take-Profit: 0.94377

Stop-Loss: 0.96529

Risk-to-Rewards: 1:2

Author: Jacky.T

Sources: PMT

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