The CFTC Positioning Report (Commitment of Traders) for the week ended May 19, 2020, has been released and shows that the Swiss Franc has seen an increase in net long positions to 4-year highs. The Swissy could hold the key to further price action on the USDCHF pair, depending on the safe-haven plays that the markets see this week, even as the US and China continue their sabre-rattling.
Here is the summary for the various currencies as detailed in the report:
There was a rise in net long positions on the US Dollar for the 9th week in a row, as traders continue to bask in the measures being unleashed by the Fed as part of its efforts to combat the negative economic impact of the coronavirus pandemic.
There was a dip in net Euro longs, but levels remain high.
Brexit uncertainties and the hanging cloud of possible negative interest rates weigh on the GBP, leading to an increase in net short GBP positions.
A slight reduction in net long positions on the JPY, but the US-China tensions could yet sway the sentiment if they intensify.
Net short positions on the CAD are growing, albeit moderately as the situation in the crude oil market continues to impact this currency. However, rising crude oil prices seem to have slowed the pace of distribution of the CAD by institutional players.
There has been an increase in net shorts on the AUD. The exposure of the Australian Dollar to the Chinese economy is once more being highlighted by recent US-China tensions, keeping traders on the Aussie Dollar on edge.
The CFTC Positioning report could be used to pit the GBP against the CHF, as these two currencies have diverging fundamentals at the moment. The pair is presently trading in a small consolidation channel, following the breakdown of the rising wedge on the daily chart. The breakdown move and the consolidation channel may be considered as a bearish flag, which has bearish outcomes if the technical expectations of the pattern play out as expected.
However, the US-China situation could play a role in deciding the risk-on/risk-off sentiment in the market for the week. Risk-off sentiment would favour safe-haven plays, supporting the technical setup and facilitating a breakdown of the flag. If this plays out, then we can expect the GBPCHF to target the August 5, 2019 and May 21, 2020 lows at 1.17964, with the previous lows of August 13 2019/previous peak of March 20, 2020 at 1.16822 coming in as the next support target. The highs of 19/23 March 2020 at 1.15299 could become relevant to the price picture if the breakdown from the pattern extends towards the price projection point.
On the flip side, a break of the current consolidation area could target the 1.20902 on the back of increasing risky sentiment in the market. However, this move must overcome the resistance at 1.19270 and the upper border of the flag consolidation area. Further advance takes the GBPCHF pair towards the 1.21916 price level (August 27, 2019 and April 30, 2020 highs), with 1.23186 presenting itself as a potential resistance further north.