After bottoming out at about 0.9620, the Swiss franc against the US dollar has predictably bounced up yet again with buyers coming in without fail at around 0.96. This price action can be viewed as the upwards sloping,1.5-year-old support line in the chart below. The upward swing in momentum is indicated by the upwards cross of the MACD indicator.
Leading up to June, we saw the CHF bid as an attractive safe-haven asset even as the US stock market climbed to new heights. What’s interesting is that even though the stock market has wobbled a little over the last week with the Nasdaq 100 falling over 3%, the USD/CHF has swung upwards from its oversold level as if ignoring the change in sentiment. This was helped along by the Fed hiking rates and the Swiss central bank announcing that it has no intention to back away from negative rates.
Even though inflation is picking up and the economy is in good shape, the SNB’s Jordan seems determined in maintaining its ultra-loose monetary policy stating that it is 'absolutely necessary' and will continue to intervene if necessary to weaken the currency as the Swiss franc remains ‘significantly overvalued’ especially as economic growth lags behind the USA and Europe.
The recent overriding theme driving the Swiss franc was investment sentiment,however it appears Jordan’s determined comments have encouraged the market to think twice about CHF appreciation. It is reasonable to guess that the currency may fall further if the risk-off investment atmosphere persists and the long term-term support could be tested once more. However, the SNB is likely to jump in to devalue the currency if the aforementioned support is broken.
With this SNB guarantee in place, traders could look to buy USD/CHF weakness and continue to hold to the first price target of 0.99. At this level, we have observed substantial sellers come to the fore but it is also the area of a strong daily resistance level and the 200-day moving average. Should the price move convincingly beyond that, traders may consider adding to their long position.
