A1 Trading Company

June 19, 2023

Trading Into CHF's and GBP's Rate News

Frank Cabibi

Following a slew of monetary and economic decisions in the week prior, the Swiss National Bank (SNB) takes its turn to set a new target for interest rates on the 22nd of June. At the same time, the Bank of England plans to do the same going into this Thursday's decision. Here's what we're looking at for CHF's and GBP's upcoming event.

EdgeFinder Analysis

EURGBP now sits at a -3 sell going into this week's news. Most analysts are in congruence that BoE will remain hawkish with another 25 bp hike in the midst. Due to a high level of inflation at 8.7%, the pound struggles against the yen, however, sentiment around a continuation of hikes with no clear end in sight is very high.

This is one of the few times where retail and smart money are thinking the same. The pound remains mixed on the COT side, but EUR is still majority long. When we take a look at the smart money tracker later on, we'll notice something interesting for both currency pairs. Retail is now 91% long, a telling sign that price action remains bearish.

On the same side of the world, SNB gears for another rate hike as well. This could be optimistic for the CHF as we go into this news. Expectations are set to 25 basis points, but this is not promised. Warnings of a more aggressive hike are now in the picture of 50 basis points. A surprise will undoubtedly be strong for the currency and will likely lead to a hawkish SNB meeting.

On the 1D timeframe, price actually looks slightly bullish. The pair broke above a falling channel and is sitting on a previous level of support. On the other hand, price is in the middle of a long term downtrend which seems likely to continue. NZD is also not showing any hawkish sentiment coming from their end at this point.

If we stack the two currencies against each other, we can clearly see the fog (as counterintuitive as that sounds). Overall a mixed sentiment overall when it comes to two aggressive central banks tightening their grip around inflation. What we can do as a result is compare the two banks to gather who might be more hawkish in the long term.

First, we can check inflation levels, that of which the UK struggles more. They is also more interest in the pound from the smart money side while retail is majority short. In terms of who may be more aggressive overall might go to the BoE who will probably be battling inflation for longer. Thus, tighter policy.

Retail Spotlight

Retail appears to be largely short CHF, CAD, AUD and GBP while bullish JPY. Although both CHF and GBP are expected to remain hawkish and potentially raise the hawkish bar, the crowd seems to think that there will be a bearish move for these two.

Smart Money Spotlight

When looking at weekly changes, we can get a clearer picture on where sentiment lies. The fog clears around GBPCHF pair. The pound remains more bullish than CHF as the number of longs increased for the pound while decreased for the franc. Gold is now less bearish on the weekly change, while SPX and NAS are more bullish. EUR is declining in the number of overall positions which may indicate a decrease in volume. Meanwhile, volatility may pick up for the pound pairs.

Fundamental Spotlight

If we compare the inflation rates of these four countries, we may get better insight on what their central banks plan going forward. This case is especially for the pound which sits at the highest CPI levels out of the four (8.7%). The higher the inflation, the higher probability that the central bank will be more aggressive on their rate hikes.

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