USD/CHF: 10th day of consolidation after monster-move higher, what next?

  • Technical double top and Italy’s concerns are keeping the Swissy from breaking above 2018 high for the time being.
  • The monetary policy divergence between the Federal Reserve Bank in the US and the Swiss National Bank should keep the Swissy well supported. 

The USD/CHF is trading at around 1.0027 up 0.15 % on Thursday as the pair remains stuck in the 0.9957-1.0059 trading range while the US 10-year note yield breaks new multi-year highs.

The Swissy found an intraday floor in Asia at 0.9985 then bounced to reach an intraday high at 1.0031 in the early American session. On the broader picture, the USD/CHF pair is in its 10th day of consolidation after gaining virtually 900 pips since mid-February on the back of robust US dollar demand.

What is keeping the pair in a range is, on the one hand, the technical configuration, which sees the Swissy forming a double top with the highs made one year ago and on the other side some concerns stemming from Italy. In fact, Reuters wrote: “Italian political concerns are spurring demand for the safe-haven Swiss franc, and if this intensifies ahead of the Swiss National Bank's quarterly monetary policy assessment next month, this may complicate the central bank's FX stance.” However, once the uncertainties abate, the pair is likely to continue its uptrend and break above the 1.0059 high of 2018 as the monetary policy divergence between the two central bank should come back into play. The Swiss National Bank considers the franc “highly valued” which makes CHF weaker compared to USD which is expected to appreciate. 

The USD/CHF uptrend is mainly driven by US dollar strength. Investors are rushing to buy the greenback as they expect the Federal Reserve Bank in the United States to hike three to four times in 2018. Investors are also massively dumping US bonds resulting in a healthy appreciation of the 10-year Treasury yield benchmark which is trading at levels not seen since summer 2011. Bonds are considered a riskier investment than holding cash. 

Since market participants anticipate the USD to yield higher interest rates in the near future, they are trying to grab some USD thinking it is at a relatively low price as they expect the value of the buck to potentially further appreciate in the future.

Meanwhile, Dallas Federal Reserve Bank President Robert Kaplan is scheduled to participate in a moderated discussion at the Richardson Chamber of Commerce in Richardson, Texas at 17:30 GMT, but this is unlikely going to affect the fate of the USD/CHF in the longer-term.

USD/CHF daily chart 

The trend is bullish and resistance is seen at the 1.0059 high of 2018 followed by 1.0100 and 1.0200 psychological figures. On the other hand, the bears should expect support at 0.9957 swing low and then at the 0.9900 figure. The Swissy is trading above its 50, 100 and 200-period simple moving averages on the daily chart suggesting a strong upward momentum. 

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