USDCHF Probable Price Path & Potential Reversal Zone

USD US President Biden signed an executive order to revoke the cornerstone oil pipeline project in cooperation with Canada. The Canadian dollar led the decline in commodity currencies last Friday. The US dollar index stabilized, closing the market up 0.1% to 90.2, ending the four-day decline and falling 0.6% weekly. Bloomberg reported that the United States will prohibit entry of non-US citizens who have recently traveled to South Africa to prevent the introduction of the variant coronavirus, and will resume entry bans for non-US citizens from Brazil, the United Kingdom, and Ireland. In addition, many Republican lawmakers believe that the US$900 billion stimulus package has been passed earlier, and the government does not need to rush to substantially increase fiscal measures. The Fed two day meeting starts Tuesday. The market expects the FOMC to maintain monetary policy unchanged. Traders will wait and see whether the Fed will release more signals on future adjustments to the pace of debt purchases. The data released by the United States last Friday generally exceeded expectations. In January, the Markit Manufacturing Purchasing Managers Index rose to a high of 59.1 in the past 14 years. In December, the annualized sales of existing homes increased to 6.76 million.

This week’s CFTC data reflect a further rise in aggregate USD short positions; the increase was relatively small overall, USD456mn, but the boost was enough to take the total bearish position amassed against the USD to a new record of USD35.4bn.

CHF The SNB remains uncomfortable with Franc appreciation and continues to remind the market it will need to be careful about any attempts at trying to force an appreciation in the currency. But the SNB will also need to be careful right now, as its strategy to weaken the Franc is facing headwinds from a less certain global outlook. Any signs of renewed risk liquidation will likely invite a very large wave of demand for the Franc that will put the SNB in the more challenging position of needing to back up its talk with action, that ultimately, may not prove to be as effective as it once was, given where we're at in the monetary policy cycle.

Net CHF longs were trimmed USD364mn, taking the bull bet here down to USD1.325bn.

From a technical and trading perspective, the USDCHF appears to be attempting to carve out an inverse head and shoulders pattern from the descending trendline support of what may be an ending diagonal pattern, more aggressive traders will likely deploy long exposure on a break of the neckline at the .8930 level targeting a test of the yearly pivot at .9182. A more conservative approach to a bullish strategy will be waiting for a breach of descending trendline resistance at .8950 and then using a successful pullback to retest the descending trendline from above before deploying long exposure.

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