The USD/CHF pair has witnessed a relentless 800-pip rally since Oct 15th, taking it to a 5-year high of 1.0328 on Friday, before it fell back to 1.03 levels today.
CHF tracked EUR?
The latest fall in the EUR also began from Oct 15th and gathered pace after Draghi hinted at more easing in December. The CHF also followed suit against the USD on
Speculation that more ECB action would force SNB to act further
Rumoured intervention or invisible hand of the SNB.
USD/CHF monthly chart
The CHF traders now should take a look at the monthly chart, which shows the pair at a key breakout level of 1.0330 (triangle resistance)
A monthly closing above 1.0330 would open doors for 1.0498 (61.8% Ext of 2011 low-2012high-2014 low) and 1.0625 (May 2008 high).
Failure to sustain above 1.0330 in the future could trigger a fresh drop to 0.9719 (23.6% of Oct 2000 high-Aug 2011 low)
USD/CHF not really overbought?
On the daily chart, the USD/CHF pair appears overbought; courtesy of the 800-pip rally in the pair. However, the monthly chart clearly shows the pair has only retraced 23.6% of the Oct 2000 high-Aug 2011 low.
So the overbought nature on the daily chart may come into play in the short-term and see the pair correct to 1.0220 (Nov 18 high) and 1.0127 (23.6% of Oct low-Nov high).
But on a monthly chart, the recovery is likely to continue, which means a monthly close above 1.0330 could be seen next month if not today.
Risk of ‘sell the fact trade’ in USD
The USD is likely to stay in demand heading into the Friday’s payrolls report and the December 16th fed rate decision. Moreover, a strong payroll would more or less confirm liftoff at Dec 16th and thus lead to another leg upwards in the USD.
In such a case, the USD/CHF is likely to see a daily close above 1.0330 and rise to 1.0498 and may even extend gains to 1.0625 levels.
However, it is worth noting that the USD could witness a “buy the rumor, sell the fact” trade once the liftoff is confirmed, and the confirmation could come through a stellar November non-farm payrolls report.
Hence, daily close above 1.0330 may be treated with respect, but the pair still risks a sharp snap back in case the USD witnesses a “sell on fact trade”. This would also mark a failure to sustain above 1.0330 and bring-in technical sellers into the play and open doors for a re-test of 0.9719 (23.6% of Oct 2000 high-Aug 2011 low).
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