Safe Havens Take the Crown — But For How Long?

The strength remains with the safe haven currencies as CHF and JPY both top the table. Usually this flow would also support the USD but that isn’t to be the case, which is not surprising considering the market has lost confidence in the greenback, for now. The NZD is the currency that gained the most last week, which may have come as a surprise to most of us retail traders.

USD Woes

US President Donald Trump is losing his grasp on the markets as his hard ball stance on tariffs eroded after the bond market reacted. Trump nearly had his own Lizz Truss moment although the 90-day tariff pause brought him some respite. He also caused a stir this week by coming after the Federal Reserve Chairman Jerome Powell as he wants the Fed to cut rates quickly. But the Chairman has other ideas, saying that the Fed is meant to remain unbiased and should follow the data. Rightly so. 

That being said, the USD is now -7 on my custom currency strength meter, and that means two things. That the USD is extremely weak, and could continue to be so, or it could reverse sharply. This is good for us, because we can look for USD short traders, but do so at a reduced risk because the USD is now oversold. 

JPY Flows

The US and Japan trade deal is ‘coming along’ according to the Trump administration, but in the eyes of Japanese officials, that’s not the case. These mixed messages won’t help the markets confidence, and could keep the USDJPY price pressured to the downside. 

Before looking at the JPY on the currency strength meter, we can take a look at the CoT Reports. A while back I reported a potential short term reversal as hedge funds reached an extreme long position. We saw some pullback before the JPY continued. 

Looking at the reports we can see that the hedge funds (green line) have now reached a new all time high. The difference between this and the last signal though is where the price of JPY futures are. We are now retesting the September 2024 highs. This could be a significant place for those traders long JPY to close some positions.

JPY is currently at +5 on the currency strength meter and has held that position for the past three weeks. Again anything above 5 tells us that the JPY is a strong currency and could continue or could reverse. Here I am looking for potential reversal moves on the Japanese Yen or at least holding off from buying it for now. 

We have to remember that CoT reports are not the be all and end all, and the signal can fail, so it’s important to stack confluences together. 

CHF is the strongest

Yesterday we discussed the situation with the Swiss Franc and how strong the currency has been after the market moved away from USD into other currencies. The CHF has now reached a point where it could be considered overbought. We also outlined how a potential market intervention could come from the Swiss National Bank, but that it may take more time as the central bank is likely to move back into negative interest rates once again. 

On the currency strength meter the CHF is still the strongest currency at +7, holding the title for the last 3 weeks. This is the highest level the currency could be, and it could lead to a reversal in the strength. The USDCHF price is trading at a significant support of 0.8100 and this could be the place the price could reverse in the near term.

NZD gains strength

The New Zealand dollar climbing up the currency strength meter may have been a surprise to most as the trade war between the US and China continues to move along. If this tariff war continues then the NZD could be reaching a barrier soon. 

However, we have seen a few surprises on the data front. Yesterday the Balance of Trade showed a surplus of $0.97 billion NZD dollars which may have shocked many considering the global slowdown coming from the trade tariffs. On another positive note the Global Dairy Trade Price Index rose from 1.1% to 1.6%. Dairy makes up 29% of total exports, and is important to the New Zealand economy. 

The currency strength meter highlights the strength in the NZD, moving from -2 to +3 over the past 3 weeks. With the addition of positive data the kiwi has strengthened against most currencies. If this momentum continues it could be a currency for me to trade against weaker counterparts or those currencies that could see a reversal. 

For example, NZD/CAD could be one to watch, the CAD is at -1 and has been tracking lower, this means we could see NZD/CAD trend lower. Another possibility could be the GBP, if the GBP continues its path lower too then GBP/NZD could break lower. 

On a reversal opportunity we could look at NZD/JPY and NZD/CHF for reversal options. If NZD/CHF price breaches the 0.4900 level of resistance it could open up for a move into the higher levels of resistance at 0.5000. 

Please remember I created this tool to identify and pair a strong currency against a weak one, it does not mean that the markets will follow the currency strength meter, and it must be used in conjunction with analysis. 

Some pairs to think about though this week and I am interested in how the current market narratives will shape these currencies going forward.

I hope you all have a successful week. Speak soon.