Chart of The Day USDCHF

USDCHF Probable Price Path & Potential Reversal Zone

USD: US stock benchmarks hit record highs in the first week of 2021 as markets largely ignored the Capitol Hill riots and focused on potential economic stimulus offered by the incoming Administration and a Democrats-controlled Congress. Investors also shrugged off the first NFP losses in eight months. On Friday, the Dow Jones rose 0.2%, the S&P500 edged up by 0.6% while NASDAQ notched 1.0% gain. For the week, the Dow and S&P 500 gained 1.6% and 1.8% respectively while NASDAQ outperformed at 2.4% w/w. All indexes were at their all-time highs. US treasuries yields rose last week as investors dumped government bonds in favour of stocks. Yield on 10Y UST hit 1.0% in mid-week and rose further to close at 1.1% on Friday. Meanwhile, the dollar index rose for the third consecutive session (+0.3% d/d) on Friday and strengthened 0.2% w/w to 90.10 as the greenback enjoyed a broad-based resurgence following the Democrats’ double victory at the Georgia runoff elections. Event risks still linger from the break in of the Capitol as reports of a defiant final week in the office comes to surface.

CHF: Switzerland's FX reserve has grown to $1 trillion, but the effort to boost inflation has failed. Around 800 billion francs have been sold in just over 10 years, potentially creating a bubble that could send shockwaves throughout currency markets should it burst. Inflation dipped to -1.2% in 2009 before the Swiss National Bank cranked up its effort to halt the franc's rise. It's still -0.8%. The FX reserve has grown tenfold, so around 800 billion francs have been sold for virtually no effect. Reserves have been diversified, which may lessen risk for Switzerland but still has a huge impact for other currency pairs – the 10 billion per month intervention programme of the past 10 months far outweighs most other single interests. Only 40% of reserves are EUR, 36% of reserves USD, 8% JPY, 6% GBP and 3% CAD. Switzerland's trade balance is four times greater than it was in 2009 and the United States has labelled Switzerland a currency manipulator. Trouble may lie ahead.

From a technical and trading perspective, the USDCHF continues to carve out an impulsive advance from the early January test below .8800. Price now looks poised to test offers and stops above .8900 as this area contains this initial leg off the lows price can pull back to test bids back below .8850, from this area there is the potential for an inverse head and shoulders pattern to develop setting up a C wave corrective advance to challenge an projected equality objective and descending trendline resistance at the pivotal .9000 level.

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