GBPCHF Analysis (July, 2022) Interest Rate Hikes Coming?!

The United Kingdom has been hit with a cost of living crisis over the past 6-months... rising prices from gas, electric and food. The people are really starting to feel the indirect outcomes of their fiscal action during the pandemic when consumers were given furlough, businesses were given tax cuts.

"Families wondering why the government isn't doing more to help them deal with their strained finances need to understand that the Treasury's fighting its own battle with inflation," - Hoa Duong, economist at PwC

This created heightened spending across the economy and with growing supply chain issues across the globe the high demand and low supply has caused prices to sky rocket across... everything!

The measures the government are set to put in place to tackle inflation such as increasing interest rates will hit consumers and businesses further, at the same time it will significantly affect the GBP exchange rates.

Technology Summary

The technology summary for GBPCHF over the past month or so has been in an interesting limbo.

We've identified a bullish run on UK fundamental data... however very recently we're also seeing Switzerland seeing similar bullish data releasing.

At a high level we can see a few interesting factors, the macro currency strength meter is a neutral point as both GBP and CHF fundamental data meets each other in the middle (the next few weeks will be huge indicators to what the future fundamentals suggest).

The GDP differentials are showing long term data suggesting bearish movements is still to come but the interest rate differentials and the hedge fund positions are potentially saying that we may see a fundamental swing.

August will be a huge month as the Bank of England committee get together to decide the interest rates which will have huge impact.

GDP Differentials

The GDP differentials show the growth rates of the UK against Switzerland, this is classed as a long term indicator as many reports need to be released to calculate the overall growth rates.

In this case we can see the growth rates dipping suggesting a potentially bearish move going into 2023.

Something to keep an eye on whether these projections change with new real data.

Trade Analysis (Imports/Exports)

British Petroleum (BP) is a UK oil producer, we tend to see a strong correlation between BP and GBP.

In this case we can see that BP has taken a bit of a slump over the past 2 months but has started a potentially bullish recovery as it spiked significantly in the past week or so.

The question is here whether GBP follows suit as right now it's suggesting bulls may come through.

Gold prices are always an interest commodity to include in the analysis.

What's interest is that we've seen a negative correlation between gold and GBP... the main reason being Gold is seen as a safe asset whereas GBP is seen as a riskier currency in comparison.

What we're seeing the past few months is Gold prices falling but GBP continuing to dip.

Will the most recent dip in July see GBP have a bullish push?

Nestle is a very popular company that most of you purchase from when you're buying your cereals, drinks or breakfast bars.

The Swiss company focuses on these food and drinks products with a huge success and global market leader.

Recently we've seen the prices for Nestle increase throughout July.

This is bearish for GBPCHF as they have a negative correlation.

The question is here whether Nestle continues to be bullish or does it continue its long term downtrend seen in 2022.

Overall the trade analysis has been fairly neutral but with some key patience we may be able to identify some opportunities here.

Interest Rate Differentials

The interest rates are a very strong indicator throughout the analysis as it shows the main money flows and lending rates/ costs in a country.

The United Kingdom has been slowly increasing interest rates since 2021.

This has caused the differential to divert significantly and with the Bank of England expected to increase interest rates again there may be a further divergence which forces GBP to have a quick bullish move.

Hedge Fund Positions

Hedge fund positions are an important sentiment indicator throughout the analysis as it shows whether money is flowing bearish or bullish.

Using the COT open interest we can identify whether hedge funds have more or less long/ short positions against a certain currency.

In this case we can see the hedge funds have been buying GBP over the past 3 months, whilst simultaneously selling CHF.

Will hedge funds continue this bullish sentiment or will they dip out their position and flip to a more bearish stance?

Price Analysis

Overall, we can see there's pretty much been a bearish down trend on GBP/CHF over the past 2 years.

However we're now reaching pandemic level exchange rates.

Will we see bulls come through following the BoE decision in August or will bears control the rest of the year.

Currently, this is one for the watchlist to keep an eye on with no key confidence in fundamentals.