The U.S. dollar rallied initially against the Swiss franc, as we are continuing to see the carry trade play out. The swaps continue to favor the US, and the SNB still wants 0% interest rates.
USD/CHF
The U.S. dollar rallied initially against the Swiss Franc as interest rates continued to rise on Wednesday, but the 10-year yield has pulled back ever so slightly, and we've seen the U.S. dollar struggle above the 0.8150 level against the Swiss Franc as a result.
Nonetheless, we have taken out that big wipeout candlestick from a couple of weeks ago, and now it could open up the possibility of a move to the upside near the 0.82 level. Ultimately, the 50-day EMA sits at the 0.8065 level and rising, and this is an area that previously had been support.
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Interest Rate Differentials and the Carry Trade
The market will continue to pay close attention to the interest rate differential, and it is pretty wide at the moment, as the Swiss National Bank hugs the 0% interest rate barrier quite tightly and it has no interest whatsoever in trying to raise rates.
Quite frankly, the Swiss like a weaker Swiss Franc, and while the U.S. dollar isn't necessarily the first place they measure it against, it's probably the second. The first one of course, being the Euro, as 85% of Swiss exports head into the European Union. So as long as that currency pair doesn't get out of control, this one could be free to move based on just the carry trade.
I've been a buyer of dips for some time and continue to look for value in this type of environment. I have no interest in shorting. I do not want to pay the swap at the end of the day, and I do think eventually the U.S. dollar will climb even further.
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