Watchlist: CAD/CHF Downtrend Setup?

 CAD/CHF has the potential for a swing move ahead with more economic catalysts ahead from Canada, and a simple technical setup that may draw in more bears.

CAD/CHF Downtrend Setup

CAD/CHF has gotten into a bearish mood this month, breaking the rough consolidation pattern between 0.7400 – 0.7500 through May and June. This correlates with the rise in risk aversion sentiment that’s been brought on by the spike in coronavirus cases recently, and expressed clearly in price action by the recent strength in safe haven currencies like the Japanese yen and Swiss franc.

That bearish mood may continue for CAD/CHF, possibly with the help of a bit of slower inflation reads from Canada, lowering the probability slightly that the Bank of Canada will tighten monetary policy to fight rising inflation.

We’ve also got the monthly Canadian GDP coming up on Friday with expectations that the economy will show a bit of slowdown once again in May. This data looks a bit further back so it’s not likely to have significant impact on the Loonie, but it’s worth watching in the event of a surprise read.

Overall, if broad fears remain that the recent surge in global covid-19 cases cannot be contained, then safe havens may continue to outperform and that CAD/CHF’s downtrend may continue. But first, we’ll be watching the pair for a potential bounce, a strong short-term possibility after today’s U.S. oil inventory update showed a drawdown, pushing oil prices higher since the release.

If the pair makes it up to the falling trendline, we’ll be on the lookout for bearish reversal patterns to potential take a short position in the pair. And when considering a potential stop above the trendline and targeting the previous swing lows around 0.7120 (or beyond if pandemic conditions worsen), then the potential swing return-on-risk looks attractive at 2:1 or more.

What do you all think? Has resistance been confirmed on CAD/CHF? Will it hit the previous swing low in the next few weeks?  Let me know in the comments section below!

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