While politicians and institutions continue to issue statements of a deep recession followed by a V-shaped recovery, fundamental indicators paint a different economic outlook. Two essential flaws are evident in the bulk of forecasts. The initial mistake is to draw parallels to a post-war recovery, as the economy after a war, continues to function. Severe disruptions and essential changes are likely to dominate a post-Covid-19 world. The secondary flaw is the assumption that direct payments made to consumers will boost activity excessively once lockdowns are eased. Markets are vulnerable to the return of a risk-off mood, anticipated to pressure the AUD/CHF into its short-term support zone.
The Force Index, a next-generation technical indicator, points towards the loss in bullish momentum with the convergence of its ascending support level and its descending resistance level. Another bearish catalyst is pending with the breakdown in the Force Index below its horizontal support level, converting it into resistance, as marked by the green rectangle. Bears are waiting for this technical indicator to collapse into negative territory to regain control of the AUD/CHF.
A reversal in this currency pairs from present revels below its resistance zone located between 0.6267 and 0.6347, as marked by the red rectangle, will confirm the presence of a long-term bearish chart pattern. A corrective phase in the AUD/CHF into its descending 61.8 Fibonacci Retracement Fan Support Level is expected. Switzerland boosted its economic aid package for a third time to CHF60 billion with more favored as the global pandemic remains in place longer than most governments can finance.
Price action is well-positioned to extend its pending breakdown sequence into its short-term support zone located between 0.5727 and 0.5796, as identified by the grey rectangle. With the 38.2 Fibonacci Retracement Fan Support Level already below this zone, more downside cannot be ruled out. The Swiss Franc is considered a safe-haven currency, adding to bearish pressures on the AUD/CHF. You can learn more about a breakdown here.
AUD/CHF Technical Trading Set-Up - Price Action Reversal Scenario
- Short Entry @ 0.6155
- Take Profit @ 0.5625
- Stop Loss @ 0.6285
- Downside Potential: 530 pips
- Upside Risk: 130 pips
- Risk/Reward Ratio: 4.08
In case the Force Index will bounce off of its descending resistance level, serving as temporary support, the AUD/CHF is likely to attempt a breakout. Given developing fundamental conditions, any breakout is favored to remain a short-term event, granting Forex traders a second short-selling opportunity. The next resistance zone awaits price action between 0.6438 and 0.6487.
AUD/CHF Technical Trading Set-Up - Limited Breakout Scenario
- Long Entry @ 0.6385
- Take Profit @ 0.6485
- Stop Loss @ 0.6335
- Upside Potential: 100 pips
- Downside Risk: 50 pips
- Risk/Reward Ratio: 2.00