Chart of The Day USDCHF

Chart of The Day USDCHF

USDCHF Potential Reversal Zone – Probable Price Path

Global risk appetite may take a backseat today as the FOMC minutes warned that the Covid-19 pandemic would “weigh heavily on economic activity, employment and inflation in the near-term” with “considerable risks to the economic outlook over the medium term”. The Fed also noted it would sharpen its guidance “at some point” and did not mention any yield curve control options even though it believed “additional accommodation could be required”. The S&P500 erased early gains to close down 0.4% for the first time this week (even though Apple’s market cap touched $2 trillion) while VIX rose to 22.54. Meanwhile, UST bonds rose across the curve led by the longer dated bonds with the 10- year yield up at 0.65% amid lacklustre $25b 20-year bond auction.

USD: The FOMC minutes mostly in-line with expectations, though some quarters of the market were expecting it to tilt further dovish. The main message of an uncertain recovery outlook came through again, with the Fed looking unlikely to give firm guidance on the monetary policy pathway anytime soon. Structurally, further discussions about a shift in policy-making rubrics is likely to result in more easing within a lower-for-longer framework. 

CHF: The Swiss National Bank (SNB) and other major central banks will cut the frequency of 7-day dollar liquidity operations conducted in partnership with the U.S. Federal Reserve, the SNB said on Thursday. “In view of continuing improvements in U.S. dollar funding conditions and the low demand at recent 7-day maturity U.S. dollar liquidity-providing operations, the Bank of England, the Bank of Japan, the European Central Bank and the Swiss National Bank, in consultation with the Federal Reserve, have jointly decided to further reduce the frequency of their 7-day operations from three times per week to once per week,” Switzerland’s central bank said in a statement, adding the change would become effective on Sept. 1.The central banks will continue to hold weekly operations with an 84-day maturity, it said.

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From a technical and trading perspective, broadly in line with yesterday’s DXY view it appears that USDCHF has carved out an interim five wave cycle that completed. Yesterday’s candle printed a key reversal pattern closing above the near term volume weighted average price accompanied by positive momentum divergence with the Psych indicator moving into positive territory. Although counter trend, bullish exposure should be rewarded through overnight highs targeting a retest of the prior breakdown area at .9350 before bears may step back in. A close below .9000 would negate the corrective thesis.

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