The US dollar continues to test an important resistance level against the Franc, as we are dancing around the 0.80 level, and area that will attract attention.
USD/CHF
The US dollar continues to be very noisy against the Swiss Franc on Monday as we are in the midst of testing major resistance. The 0.80 level has been important multiple times in this pair and I anticipate that we will continue to see that be the case.
Ultimately, this is a market that is caught in a bit of a tug of war between a Federal Reserve that might have to stay tighter for longer and the idea of the Swiss Franc being a safety currency. Because of this, I would anticipate that market participants are watching this area very carefully as it will have a lot of headline risk due to the fact that it is such a large and obvious number.
A Potential Carry Trade
But we also have the 200-day EMA sitting right here as well and I think that will end up being another problem for this market. Ultimately, though, I do believe that traders will continue to look at this as a market that could eventually break out to the upside and if and when it does, it will pay you at the end of every day to hold onto US dollars as interest rate differential is so wide.
The Swiss National Bank has decided to confirm its attitude as being bound to the 0% interest rate and of course the Federal Reserve is likely to continue to fight inflationary headwinds so it all comes together for what I think could be a nice carry trade over the longer term.
Being a bit cautious makes a certain amount of sense but once we clear the 0.8050 level, I think you will see more money flying into this market. The 0.79 level underneath should be supported right along with the 50-day EMA.