USD/CHF bears targeting lower levels in the 0.92 area

USD/CHF is a touch lower in Asia, trading down 0.1% at the time of writing, after travelling between a low of 0.9237 and a high of 0.9250 so far on the day. There is scope for further downside to test the 0.9220 support area with the US dollar under some pressure ahead of key US data later in the week. 

Meanwhile, the broader theme is risk-on with investors cheering comments from the weekend that cases in South Africa, where the Omicron variant was expected to have originated, showed milder symptoms. The top US infectious disease official, Anthony Fauci, said "it does not look like there's a great degree of severity" so far. This has been supporting risk appetite which led to an unwind in the Swiss franc at the start of the week. The US dollar caught a bid as well which propelled USD/CHF to 0.9275. 

However, the heat in the dollar has cooled in recent trade and it is treading water in the middle of its range over the past 2-1/2 weeks near 96.20. as measured by six currencies in the dollar index, DXY. There is scope for lower levels, however, as the euro, the component of the index with the largest share, is on a tear higher. EUR/USD has rallied from a New York session low of 1.1227 to a high of 1.1283 in Asia. 

Eyes on SNB

Meanwhile, the Swiss National Bank (SNB) is following the Swiss franc's exchange rate "very closely" to monitor its impact on the economy. Markets are hesitant to chase the strength in the swiss franc due to the prospects of the central bank intervening.  Governing board member Andrea Maechler told recently stated that the SNB remains ready to intervene when necessary,

"At the SNB, we're always ready to intervene in foreign exchange markets if needed," Maechler said during the interview with RTS' TV programme Forum. "We don't target a specific exchange rate, neither a specific level nor a specific rate versus the euro or the dollar, but we follow it very closely to see the impact on the economy."

The Swiss franc hit its highest level against the euro six years earlier this week, albeit without signs of the currency interventions the SNB has often undertaken at such moments in the past. Maechler said it was difficult for the economy to deal with sudden changes in the exchange rate, while gradual adjustments were easier to handle. "An exchange rate is a value versus a foreign currency so it also depends on the inflation we have here in Switzerland versus the inflation abroad," she said.

"Inflation signals that the economy is on the path towards recovery. From that point of view, we see it with great optimism," she said. "The question is how fast it goes up and currently we see a certain inflationary pressure. The question is whether this is temporary or the beginning of a big upwards movement."

It was not the central bank's role to react to "each and every shock", she added. She explained it is there to maintain inflation within the SNB's 0% to 2% target range over a mid-term horizon of two to three years.

Looking ahead for the week, the JOLTS report on US job openings is due later Wednesday and this should provide further evidence of a tightening labour market, potentially adding fodder for bets on earlier Fed tightening, which could boost the dollar. Money markets are currently fully priced for a quarter-point rate increase by June. On December 10, markets will be looking to the US Consumer Price Index as another potential catalyst. 

''We expect inflation to slow significantly as fiscal stimulus fades and supply constraints ease, but we don't expect the data to be validating in the near term'', analysts at TD Securities said. ''The CPI likely surged in Nov, with a drop in oil coming too late to avert another large gain in gasoline and core prices boosted by rapidly rising used vehicle prices and post-Delta strengthening in airfares and lodging.''