NZDCHF Analysis (Jun, 2021) The Big SHORT?!

New Zealand is facing super high levels of growth as it recovers from the pandemic beating estimate in Q1 with GDP rising by 1.6%. One of the major benefits New Zealand have with their island country is that they've pretty successfully eliminated the virus in their country.

This has allowed businesses and consumers to thrive during a somewhat difficult time for many other countries and people. However, the growing hunger to spend is to set some fears of inflation.

Consumers and businesses are confident, willing to spend more and eager to do so. This all starts to raise questions around inflation which creates a bearish outlook on the NZD but a bullish outlook for the economy.

In this article we'll be covering the ins and outs of the data that's been released and my take on NZDCHF moving into Q3 of 2021.

Macro Currency Strength Meter

The macro currency strength meter has started showing very early signs of a potential bearish outlook on NZDCHF falling nearly 40 points for NZD and rising nearly 40 points for CHF!

This is a huge divergence to watch out for and with other data suggesting bears are coming in we can't ignore it.

Overall, the currency strength meter has helped us filter out the market noise and focus on bearish positions for NZDCHF.

Try the currency strength meter for free for 3 currencies or unlock the full power of 35 currencies here.

Now, that we're bearish... what does the other data suggest?

GDP Differential Indicator

The gross domestic product (GDP) is a common monetary benchmark of the total production within a country.

It simply is an easy way for traders to estimate the growth, and value of an economy.

Figure out how to use the GDP indicator within your analysis to really gauge the long term outlook of the markets.

What we can see in a quick overview is that GDP differentials are bearish... that's great for our bearish outlook on NZDCHF moving forwards.

It suggests in the long term we may see this position trend!

Trade Analysis (Imports/Exports)

Airlines are potentially set for a comeback with the vaccination rates across the world starting to climb up. However, with countries still being fairly strict on their borders they're going to be one of the lagging indicators in the analysis.

What we can find from AIR vs NZDCHF is that over the past few months both have been on a down trend.

More recently, AIR has slumped which has yet to be seen in the NZDCHF exchange rates.

Overall... AIR is signalling a bearish outlook for NZDCHF.

MEL also known as Meridian Energy Limited is "engaged in the business of generation, trading and retailing of electricity, and the sale of complementary products and services" - Reuters.

Energy is a great commodity in general to analyse against NZD as they're both fairly risk sensitive instruments. That being said the past few months have shown that strong positive correlation.

MEL prices have fall significantly since around mid April and the same has happened with NZDCHF.

Overall... both companies we've analysed have shown statistical evidence that NZDCHF has a strong chance to down trend.

Let's move onto the monetary policy side of things... interest rates.

Interest rate differential indicator

Logikfx's 'interest rates forex indicator' helps traders identify the 'hot-money flow' between two currencies. In this case between NZD and CHF.

Unfortunately, due to Switzerlands negative interest rates NZD has a positive differential of 1 so this is overall bullish in the long term.

This goes against our NZDCHF bearish idea...

Hedge Fund Positioning - COT Report

The above analysis is a comparison between the hedge fund sentiment of two currencies, calculated by long (%) minus short (%) open interest .

The differential represents the difference between hedge fund sentiment of the base currency and quote currency.

If the differential between the base currency and quote currency is positive, this is considered a sensible time to enter long on the currency pair, and vice versa (provided thorough macro analysis also agrees).

What we're seeing between NZD and CHF is that hedge funds have had a pivotal moment...

They've increase significantly their long positions in the CHF and decreased their NZD positions.

This not only pushed the open interest differential negative but it's the first time this has happened in the past 6 months!

Overall... we've got the green light from the markets and the big boys.

We're trading with the markets and not against them and that's great for our bearish move.

Price trends

Not going to spend too much time on this section but overall the price action the past month or so has been bearish.

After peaking in late April there's been strong resistance ever since.

Use whatever technical analysis you want at this point as the fundamentals are telling us the bears are in control and they might be in control for some time....

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