USD/CHF finds support at 200DMA for third straight session, remains subdued pre-NFP

USD/CHF found good support at its 200-day moving average for a third consecutive day on Thursday. The pair has been hovering just to the north of its 200DMA at close to 0.9180 since Tuesday, during which time it has undulated within a fairly tight 0.9180-0.9220 range. The 21 and 50DMA both currently sit at the 0.9230 level and have been, for the most part, capping the gains.

The pair has been going sideways despite Fed Chair Jerome Powell’s hawkish assessment of the state of the US economy in Congressional testimony earlier in the week. Powell said it would be appropriate to discuss speeding the pace of the bank’s QE taper. There has also been a string of strong US data releases for the month of November; the ISM Manufacturing survey, ADP estimate of national employment change, and Challenger layoffs all endorse Powell’s bullish stance on the economy.

Two factors are keeping market participants tentative and cautious on placing big bets on the pair. Firstly, the most important US data release of the week is on Friday in the form of the official November US labour market report. Fed members will want to see continued strong gains in employment if they are to agree on an acceleration of the QE taper at the 15 December meeting.

Secondly, the outlook for the US economy remains clouded by the emergence of Omicron, with infections now being detected in the US. In the worst-case scenario, which is being considered as a reasonable possibility, the new variant might couple high transmissibility and immune escape with severe symptoms and a high mortality rate. This may see the US (and other countries) go into lockdown and may push back Fed (and other central bank tightening plans). This would benefit the Swiss franc which is 1) a safe haven and 2) not exposed to dovish central bank repricing (there are no hawkish SNB expectations to pull back on in the first place!).

Until uncertainty about the virus has cleared up, USD/CHF may have a difficult time recovering to its pre-Omicron levels in the mid-0.9300s, even in the face of further strong data and hawkish Fed vibes. That’s not to say Friday won’t see volatile trading conditions. But in the short-run, the pair's determination to remain supported above the 0.9200 may be a signal that the recent bearish run will soon reverse.