USD/CHF bulls looking for impulse to move beyond Feb highs, bears seek test below 0.9730s

• CHF is a top-performing G10 FX currency but bears are lurking.
• USD/CHF is being supported as the US dollar makes a comeback and US stocks stablise.
• Risks to the eurozone put the ECB back into the picture and SNB could well intervene. 

USD/CHF is trading at 0.9766 having traded between a range of 0.9728 and 0.9778 and is firming on the day so far, +0.08% at the time of writing following a bullish correction on Wall Street. However, the news in Italy is concerning and the recent update of 400 confirmed cases has made for a sell-off in US benchmarks as the session moves along which could strip the air back down to size again. 

USD/CHF has been in three days of decline prior today's correction with CHF outperforming the G10 this week so far. CHF net positions remained in positive territory for five consecutive weeks as well according to last week's COT report, though longs halved last week. Although the CHF is an established safe haven, the Swiss National Bank’s negative interest rate policy and the relative attraction of the USD may have reduced its appeal. Having said that, the troubles in Europe, both political and economically along with the coronavirus epidemic will likely mean that the European Central Bank's Governing Council’s take on the economy could be more downbeat at the March meeting.

The CHF's safe-haven status will be a concern for the SNB already and should the ECB cut rates or step up QE, then we would expect to see intervention from the SNB to ensure an even keel. However, the ECB will be very reluctant and may prefer to emphasise forward guidance instead, while leaving the door open and ready to act. The ECB may also much prefer to see a fiscal reaction here, and with the German health minister saying, "we are at the beginning of a coronavirus epidemic," the government may have no choice but to intervein. 

Fed to cut in April, prices into DXY's dop

As for the US dollar, the BIS triennial FX survey shows that the dollar as by far the most liquid currency and despite the direction of the US balance sheet, the greenback is still  seen as a safe currency. We have seen the rise of the dollar this year and it is likely to remain underpinned so long as the Federal Reserve remains its course at the next meeting around in March.

A rate cut is not off the table, but investors have priced in around 75% probability of a rate cut in April instead and continue to price in slightly more than 2.5 rate cuts from the Fed within 12 months. We have probably seen that already prices int the recent decline of decare highs in the DXY which shied away from the 100 handle to a recent low of 98.88 in tandem with the US stock market exodus on Monday and Tuesday. 

All in all, USD/CHF could well find its footing again following this recent pullback, with a bullish pulse beyond the 20 Feb highs once US stock markets find their stability again. However, should the coronavirus risks continue to evolve as rapidly as they are this week, then the CHF will likely remain on the front foot due to its safe-haven status and until authorities step in. 

USD/CHF levels

From a technical point of view, USD/CHF's downside targets are seen in the 0.9730s and 0.9670s ahead of the 0.9630s and YTD lows. Above the said highs at 0.9848, 0.9867 is a 61.8% golden ratio target yet to be tested which has a confluence of the Nov. support structure guarding a run to the 78.6% 0.9936 targets and the top of the range's high of parity at 1.0002.