USD/CHF recovers above 21DMA and 0.9100 level, but bearish bias remains

• USD/CHF trades in the red but is off sub-0.9100 lows, as markets favour safe-haven CHF over USD.
• The pair looks set to continue to grind lower within its short-term bearish trend channel.

USD/CHF pushed to new weekly lows below 0.9100 and its 21-day moving average at 0.9105, hitting lows around 0.9090 during Tuesday’s European morning session. However, much of these losses have been erased and the pair is now back above the 0.9100 mark and its 21DMA, though still holds onto losses of roughly 15 pips on the day or just under 0.2%.

CHF, JPY favoured as safe havens over USD

Risk appetite has been choppy today, but there has been an unmistakeable negative bias; the S&P 500 currently trades with losses of around 0.6% and bond yields are higher on both sides of the Atlantic. Crude oil markets have bucked the trend and recovered back into positive territory, while the more risk-sensitive G10 currencies (NOK, CAD, NZD, SEK and AUD) all nurse mild losses of between 0.1-0.2% vs USD.

No single piece of news can be pointed at explaining why markets are taking a more cautious approach today; following strong Moderna vaccine news-driven risk on gains yesterday, a mild pullback like what is being seen today is normal.

USD has failed to benefit from today’s broadly risk-off feel, with markets preferring to buy JPY and CHF as their FX safe havens of choice, hence Tuesday’s gains in USD/CHF.

A few factors are likely to have contributed to the market’s preference today for CHF (and JPY) over USD;

1) Fedspeak so far this week has been dovish; FOMC Chairman Powell was on the wires today talking about how he is worried about the near-term outlook for the US economy amid rising Covid-19 cases, and playing down vaccine optimism by noted that mass vaccination and an end to the pandemic is still many months away. Now is not the right time to pull emergency supportive measures away, he said. Meanwhile, FOMC members Barkin and Bostic made similar points, while Bostic again hinted that the Fed could offer further economic support in the near future. Note also that FOMC Vice Chairman Clarida’s comments on Monday have also been interpreted as dovish; he noted that the Fed would be looking at the participation rate as well as the unemployment rate when assessing whether or not the economy is at full employment (and nearing the point where the Fed could lift interest rates). Some analysts have seen this Clarida raising the bar to eventual rate hikes.

2) Soft US retail sales data, though not triggering any negative USD reaction at the time, highlights the fact that the economic slowdown into Q4 2020 and Q1 2021 has already begun and has likely contributed to keeping USD offered over the past few hours.

Global equity markets continue to trade at or close to recent highs (or even all-time highs in the case of the US) and have largely focused on post-US election and vaccine positives, ignoring near-term virus risks. But should the focus return to the deteriorating near-term picture and sentiment start to take a turn for the worse, it may be that CHF (and JPY) continue to outperform at the expense of USD.

USD/CHF continues south within bearish trend channel

USD/CHF rebounded from support at the 0.9090 level during Tuesday’s Europe morning session; this level now constitutes the 29 October, 3 November and Tuesday (17 of November) lows, and will likely to continue to offer solid support going forward. But before retesting Tuesday’s lows, USD/CHF will have to break back below its 21DMA at 0.9105 and the psychological 0.9100 level, something the cross has already failed at twice this week.

However, with USD/CHF continuing to trade within a recent downwards trend channel (see the below four-hour chart), the pair's bearish bias appears to remains intact for now. Below the 0.9090 level, there is very little by way of support until the October lows around 0.9030.

Conversely, if the bulls continue to regain control, USD/CHF could see an upside break of its current downwards trendline, although such a move would likely have to coincide with a break above the pair’s 50DMA at 0.9134.

USD/CHF four-hour chart