USDCHF has come under selling pressure this morning after better than expected Swiss GDP for Q1, which rose 0.6% beating expectations for a 0.2% rise. However, we think that rising volatility is having a bigger downward impact on USDCHF right now.

Interestingly, the USD managed to rally as volatility started to rise at the beginning of May, however it appears that we may have reached a tipping point – when rising volatility is no longer USD positive.

Since USDCHF is a very sensitive to risk sentiment, rising volatility could have a big impact on this cross. USDCHF has dropped more than 200 pips in less than 24 hours, and breached a key support level at 0.9600. If volatility remains elevated, we think that USDCHF could come under further selling pressure:

• The dollar has been moving closely with stocks, so if stock markets don’t pick up then it is hard to see the USD making a sustained recovery in the short term.

• The bearish crossover in the daily MACD suggests that the momentum is to the downside and 0.9800 could be a medium-term top.

• The break below 0.9600 negates the bullish harami candlestick pattern from Monday, and suggests that the bears have control.

• However, we are aware that this cross is looking oversold on the hourly MACD and RSI charts and European stocks are clawing back some recent losses. Thus, this cross may recover in the short term. However, if volatility picks up once more it will remain vulnerable, in our view.

Some key levels:

Short term resistance: 0.9595 (daily pivot), 0.9620 and then 0.9665.

Short term support: 0.9565 (today’s low), then 0.9545 and 0.9505

Takeaway: rising volatility is bad news for USDCHF; if we don’t see volatility fall then we believe that this cross could come under further selling pressure.

Figure 1: USDCHF


 Figure 2: USDCHF and USDCHF volatility (3-month at the moment options)

Source: and Bloomberg