What Are The Best Pairs To Trade During The COVID 19 Crisis?

Pairing safe haven currencies, such as JPY and CHF against high beta currencies like AUD and NZD is the best play during the Crisis.
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Daniel Marks
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Trading During COVID 19

A quick question from Christopher who is asking, “What are the best pairs to trade “during the COVID-19 crisis?” Now the COVID-19 crisis is really affecting markets through the overall risk tone.

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Why Are JPY and CHF Considered Safe Haven Currencies?

So you’ll notice over recent months, as long as this crisis has been going on, we’ve been seeing a really strong risk-off tone across markets.

So what that means is then what we really want to focus on is those risk sensitive currency pairs. In other words we’re looking to combine your safe haven currencies with your high-beta commodity-linked currencies. Now that gives us six major currency pairs to really focus on if we don’t include the U.S. dollar.

Now traditionally, yes the U.S. dollar is a safe haven but the dollar’s influence is really a result of demand for cash. And because even though we’re still getting risk-off we’ve had that demand for cash kind of reduced, for that reason it’s not seeing the same safe haven flows which we were seeing when we had that real rush for cash. So generally speaking we really want to focus on the Swiss Franc and the Japanese yen for your general risk-on, risk-off tones.

And then for your high-betas we have the Australian dollar, the New Zealand dollar, and the Canadian dollar. So you’ll notice on the charts here we’ve got your Aussie/Swiss, your Aussie/Yen, your New Zealand dollar/Swiss, your New Zealand dollar/Yen, your Canadian dollar/Swiss, and your Canadian dollar/Yen. And you’ll notice that throughout this whole year they’ve really been selling off quite rapidly. Of course that has been because of the coronavirus crisis.

You will notice that since we’ve had more and more measures introduced by central banks and governments, as that risk tone has begun to calm most of these pairs have actually seen a bit of a retracement and they have begun to pull off of their recent lows. What we can look for here is, if we continue to see this risk-off tone if we see the current measures implemented by governments and central banks, if those measures prove to be insufficient and the virus continues to spread at an increasingly aggressive rate, then eventually the selloff is going to continue and all of these currency pairs are going to once again come under selling pressure.

If we have a very strong risk-off tone you want to be looking at selling these currency pairs. Now conversely, if the current measures prove to be sufficient, if we start to see the spread of the virus begin to peak and begin to slow, then ultimately these are the pairs which should really benefit and recover. And at the same time, as we can see, all of these currency pairs have plenty of scope to the upside.

If we do see that material shift back to risk-on we’d expect to see significant strength in Aussie/Swiss, Aussie/Yen, New Zealand dollar/Swiss, New Zealand dollar/Yen, and Canadian dollar/Swiss, Canadian dollar/Yen.

Now as a slight side-note just for the Canadian dollar pairs, it’s also important to keep an eye on oil prices because that is another big influence for the Canadian dollar. And as we know seem to have a bit of a price war going on with oil, that still proves downside risks. If we do see that recovery to risk-on we’ll also be looking for oil prices to recover for a high conviction CAD long-base trade or alternatively, if we continue to see oil prices remain pressured and we see a further shift to risk-off then you’ve got a brilliant setup for a CAD short based trade.



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