Swissie surges to record highs as US default looms

The Swiss franc tops the performance charts coming into the US open, surging nearly 2% against the greenback. Concerns about a possible US default intensified over the weekend after President Obama and Congress failed to reach consensus on an agreement to raise the federal debt limit. Classic haven flows dominated Asia Pacific trade as equities sold off and traders sought refuge in the swissie, the yen, and gold which once again made fresh record highs above $1618. The USD/CHF pair broke below the 50% Fibonacci extension taken from the July 1st and 19th crests at 0.8050 before hitting all-time highs at the 0.8020 interim support level. Subsequent floors are seen just lower at the 61.8% Fib extension at the 0.80-figure and 0.7940. Topside resistance is eyed at 0.8050 backed by the 38.2% Fib extension at 0.8105 and 0.8140. Markets will be fixated on developments on Capitol Hill as the August 2nd deadline quickly approaches. Look for risk appetite to pickup with the announcement of an agreed plan to raise the debt ceiling, with the swissie likely to pullback on such a scenario.

Key Levels/Indicators

The sterling was slightly lower against the greenback at the open of North American trade, with the GBPUSD pair off by a modest 0.08%. The pair continues to hold above the 100% Fibonacci extension taken from the May 23rd and July 12th troughs at 1.6270 with topside resistance eyed at trendline resistance dating back to the April 27th highs. The pound will remain vulnerable ahead of tomorrow’s 2Q GDP print where consensus estimates call for the pace of domestic growth to soften to 0.2% q/q, down from a previous read of 0.5% q/q. The year on year print is also expected to slow to 0.8% from a read of 1.6% y/y a month earlier. A weaker than expected print here could see interest rate expectations deteriorate even more with Credit Suisse overnight swaps factoring in only 10 basis points in rate hikes over the next twelve months. A break below interim support eyes subsequent floors at the 1.62-figure backed by the 76.4% Fib extension at 1.6155, former trendline resistance currently at 1.6110, and the 61.8% extension at 1.6085. A breach of the upper bound trendline resistance level eyes targets at 1.6340 followed by the 1.64-handle and 1.6450.

Key Levels/Indicators

Michael Boutros, Currency Analyst for DailyFX.com is a Technical/Fundamental Analyst specializing in the FX markets. E-mail: mboutros@fxcm.com.

Twitter: @MBForex
WEB: www.fxcm.com