The USDCHF is a tricky pair to trade, though it does have quite a good inverse relationship to the EURUSD, so keeping an eye on it can help with the more liquid EURUSD.
The rate differentials are in a strong US dollar favor, but the Swissy is a traditional go-to safe-haven currency during times of disruption. Which everyone would agree was the whole of 2020.
USDCHF Forex Analysis
In December 2020 the United States released a report that concluded Vietnam and Switzerland met all three criteria for currency manipulation under the Trade Facilitation and Trade Enforcement Act of 2015.
The tests assess trade surpluses with the United States, a material current account surplus of at least 2% of GDP over a 12-month period, and persistent one-sided currency intervention involving repeated net purchases of foreign currency.
The SNB often states that they are willing to participate in the foreign exchange markets and have been known to cause a flash crash in the past because of an unexpected market decision to remove a peg or in layman’s terms, temporarily stop the manipulation.
The Swiss National Bank (SNB) over the years has employed a range of tools to try to offset appreciation pressure on the Swiss franc and limit inflationary pressures and support growth, pegging the EURCHF was just one of them.
Today SNB’s Chairman Thomas Jordan said that “inflation would really have to go out of the range of price stability to consider altering policy”, and during the latest SNB policy rate decision announcement we learned that the SNB’s baseline scenario is for the global economy to ease restrictions and for strong growth to occur during Q2 and Q3 of 2021.
For now, the SNB is maintaining its expansionary monetary policy with a view to ensuring price stability and providing ongoing support to the Swiss economy in its recovery from the impact of the coronavirus pandemic. The SNB policy rate stays at −0.75%, while the Swiss franc remains “highly valued”.
USDCHF sentiment on the ActivTrader platform is getting towards the extreme of bullishness. This usually means the prices will squeeze lower until these traders puke or reverse. With that in mind looking at a daily chart of the USDCHF we could be about to find a decent level to reverse off.
In the above chart, I have boxed a consolidation area of balance and the dashed horizontal line is the median of that price range. Today’s bullish US dollar move could push the USDCHF to that level and if it were to magically act as resistance, I would be keen to look for a reversal to the downside. We’re currently slightly above the median of the previous bullish move from the late 2020 lows to the significant swing high so that is the potential signal that any downside moves have now been removed. But I would like to see USDCHF get above the dashed blue horizontal around 0.9150 before getting too excited for a long trade.
On the next chart, we are seeing prices back above the daily 200 ema which is also added to the bullish scenario.
Looking fist at the Ichimoku cloud, price is trading in the middle, so I would expect that momentum would at least ease off, rather than this just exponentially run through the cloud. Looking left the price action was messy on the way down at these levels, with lots of little consolidatory ranges.
The next level of resistance could be from the previous market structure which acted as support, and that would come in around 0.923 and coincide with prices around a fib 61.8% retracement level.
The SNB would like to depreciate the franc and this could be their moment to do so. Though until we start seeing continued bullish moves in the US dollar basket of currency pairs, I am sticking with a dollar reversal in the next couple of days. If it doesn’t happen I will look for previous resistance to start acting as support.