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Given the big rebound in equity prices over the past couple of weeks, rising yields, including on the US 10-year Treasury note, and the sharp USD/JPY rally, you would think the USD/CHF would be much higher by now. But evidently, haven demand for the franc remains high, much to the annoyance of the Swiss National Bank (SNB). This has helped to keep the franc supported, at least for now anyway.
The Swiss central bank re-iterated on Thursday that it will retain expansionary monetary policy as the franc remains highly valued and that it is ready to intervene in the foreign exchange market to counter the upward pressure on its currency. The market has gotten tired of the SNB’s rhetoric, and traders are testing the central bank’s patience by bidding up the franc.
Still, I can’t see why the USD/CHF cannot start to rise again, given its historic positive correlation with the USD/JPY, and the factors mentioned above.
USD/CHF Correlation With The USD/JPY
|
1 week |
1 month |
3 months |
6 months |
1 year |
|
0.48 |
0.74 |
0.74 |
0.75 |
0.89 |
A little bit more like the USD/JPY, the USD/CHF has been forming higher lows since the start of 2021 and last week made a new high for the year, before slumping. I expect this trend to continue in the long term, with rates now back in the demand zone around the 0.9250-0.9280 area:
On the daily time frame, we can see that there is also the 61.8% Fibonacci retracement confluence around the above mentioned support area, potentially providing additional support. The 200-day moving average, which provides a more objective way of determining the trend direction, is pointing higher. The USD/CHF is currently holding above the 200 MA after repeatedly refusing to hold below it in the past.
While I am fundamentally bullish on the USD/CHF and the longer-term technical outlook remains positive, conservative traders now need to see a short-term reversal and a bullish signal before potentially entering a long trade. We can be as bullish or as bearish as we want, but what’s important is the agreement of the market with our thoughts.
So, the first thing I want to see is evidence that buyers are going to step in around current support levels.
A nice rebound might help create a hammer-like candle to provide us the signal we are looking for.
Alternatively, a slow grind back above last week’s low at 0.9313 would provide us with the first positive sign. Why last week’s low, you might ask? Well, last week the USD/CHF formed a bearish-looking shooting star candle on the weekly chart and so if we now go back above the low of that candle, it would point to weakness in the bearish momentum.
An even stronger signal would be a higher high above the most recent local high at 0.9375ish.
