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Vladimir Zernov
Swiss Frank

Action in USD/CHF has calmed down following yesterday’s volatile session. The news on the economic front do not get better – the European Union is closing its borders for all non-essential travel as it tries to contain the spread of coronavirus. Such measures will certainly add to the existing pressure on the fragile European economy.

The number of coronavirus cases continues to grow, with 27980 cases in Italy, 9942 in Spain, 7272 in Germany and 6633 in France. The information on the virus becomes outdated at the time it is published as the situation evolves in a rapid fashion.

In this environment, investors will continue to search for safe haven assets. USD/CHF is a battlefield of such assets since both the U.S. dollar and the Swiss frank are viewed as relatively safe currencies that often benefit from turmoil.

Yesterday’s data showed negative numbers for producer & import prices in Switzerland while the country’s government bond yield stays firmly in the negative territory. At the same time, the U.S. government bond yield remains in the positive zone despite the recent Fed’s decision to cut rates to zero.

Currently, the market does not expect additional action from the Fed since bringing the interest rates into the negative zone could have unexpected consequences for the U.S. debt.

The yield spread between the frank-denominated bonds and the U.S. dollar – denominated bonds will likely continue to serve as a supporting factor for the U.S. currency.

Technical Analysis

Yesterday, the lower end of the current upside channel served as support for USD/CHF. Thus, the current upside trend in the pair remains intact. The pair gets ready to test the 20 EMA at 0.9520. A successful breach of this resistance will lead to further upside for USD/CHF.

In this case, the pair will be free to move closer to the next resistance level at 0.9620. Currently, USD/CHF remains far from an overbought condition, which increases the chances for an upside move.

Should the situation in the U.S. economy deteriorate further and cause a broad sell-off of the dollar, USD/CHF will have to settle below 0.9400 to have a chance for a sustainable downside move which could lead to a fall close to previous lows at 0.9182.

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