Potential signal:
- I am a buyer above 0.8225 with a stop loss at the 0.81 level, and a target of 0.8311.
- USD/CHF dropped initially on Wednesday, but we are seeing a bit of a jump later in the day.
USD/CHF
The U.S. dollar initially pulled back a bit against the Swiss franc during trading on Wednesday, but has turned around to bounce a bit.
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The interest rate differential continues to favor the U.S. dollar over the longer term, and therefore I have no issues whatsoever in holding dollars against the franc, despite the fact that it's been a tough couple of days. Ultimately, we need to pay attention to the fact that some of this may have been a knee-jerk reaction to the election, which, at the end of the day, probably doesn't change too much. We'll have to wait and see.
Furthermore, it doesn't take effect until January, so any hopes of peace in the Middle East might have to wait a couple of months. In fact, this may actually accelerate things. We need to get things done, as it were. Beyond that, we also have to keep in mind that the Democratic Party as a whole has supported the conflict as well, so I think ultimately this changes nothing.
The interest rate differential is where I really pay attention to here
With the U.S. dollar paying you to hold it against the Swiss franc, breaking above the 50-day EMA at the 0.8222 level, for me, is the signal to start getting long again. I think the 0.83 level would be a bit of a barrier, and then 0.84
I don't have any interest in shorting this pair because, quite frankly, if I want to sell the U.S. dollar, I'll sell it against something that I don't have to pay such a high swap to do so, maybe against the Mexican peso or even something to the effect of the Australian dollar, something that's at least close.
With this being said, I think the knee-jerk reaction has been turned back around, and I think we can start focusing on real rates.
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