USDCHF: Parity in Play?

Yesterday, we discussed how the SNB’s decision to cut Swiss interest rates to negative had only a short-lived effect on EURCHF (see “The SNB Gave EURCHF its Heart but EURCHF Gave it Away” for more). The impact was minimal because both the Eurozone and Switzerland now have negative interest rates and dovish central banks, to say nothing of the likelihood that the SNB’s decision was already priced into the market.

That said, Switzerland’s decision to go negative has had an impact on USDCHF, which spiked sharply last week. To draw a contrast with EURCHF, the direction of monetary policies in the US and Switzerland could not be more different. After yesterday’s jaw-dropping US GDP reading of 5.0%, the Fed is almost certain to raise interest rates early next year, while the SNB, for better or worse, will likely follow the ECB’s dovish actions in 2015.

On a technical basis, USDCHF’s bias is clearly higher. The pair has consistently found support at its 50-day MA since July, including just last week; that key floor now sits near .9650, suggesting that the market may be eager to buy on any near-term dips in the pair. Meanwhile, the secondary indicators are also painting a bullish picture: the MACD is once again trending higher above its signal line and the “0” level, showing clearly bullish momentum, while the RSI indicator remains in bullish territory (>40), but not yet overbought.

Given the bullish fundamental and technical outlook, USDCHF may extend its rally heading into the end of the year. To the topside, the next major level of resistance is the 4-year high at .9970, though the previous resistance levels stretch all the way up to the November 2010 high at 1.0070. As long as rates stay above strong support at the 50-day MA, the parity (1.00) level could be in play for USDCHF sooner rather than later.