USD/CHF drifts higher as US-Swiss monetary policy disparity grows

April 4, 2018 01:34 PM

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Ahead of Friday's U.S. jobs report, the  U.S. dollar/Swiss franc (USD/CHF) currency pair has been among the strongest dollar pairs. This has been mainly due to a slumping Swiss franc rather than a rallying U.S. dollar. Indeed, the EUR/CHF and GBP/CHF have both been rising while the CHF/JPY has been falling of late. The Swiss franc remains fundamentally weak owing to a dovish central bank.

The Swiss National Bank (SNB) charges banks interest on deposits while keeping the benchmark interest rate below zero, at -0.75%, to dissuade CHF investments. The Fed meanwhile has started to reduce its huge balance sheet and is set to raise interest rates at least two more times this year. The disparity between the Swiss and U.S. monetary policies, therefore, continues to grow. In theory, the USD/CHF should continue to rise over time, ceteris paribus. 

Now from a technical perspective, the Swissy has created several bullish signals already. After forming a false break reversal pattern at 0.9260, the USD/CHF has subsequently broken back above the 2017 low of 0.9420/5, making several higher highs and higher lows in the process. Clearly, this is bullish behavior of price. As a result, the path of least resistance remains to the upside. If it now manages to cleanly break above 0.9595 resistance then we could see a continuation towards the next bullish objectives at 0.9655 (200-day moving average), 0.9705 (old support) and 0.9735 (last support pre-breakdown). Support meanwhile comes in at just below 0.9510.

About the Author

Fawad Razaqzada is market analyst at FOREX.com and City Index brands of Gain Capital.