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Vladimir Zernov

Finally, it’s time for the U.S. dollar to lose some of its recent gains. The American currency was gaining ground against a broad basket of currencies due to the major flight to safety amidst the coronavirus crisis.

As a result, the U.S. Dollar Index breached the resistance at 100 and almost got to 104 before pulling back below 103. In my opinion, the U.S. dollar safe haven status will soon get tested as the increased number of coronavirus cases is expected to make a material blow to the U.S. economy.

Recently, California issued a statewide “stay at home” order while the total number of COVID-19 cases in the whole country exceeded 14,000. As more tests are conducted, the number of cases will grow materially over the next few days, which may force officials to announce additional containment measures.

Yesterday, the Swiss National Bank presented its monetary policy assessment and kept the rate unchanged at -0.75%. The bank stated that the negative interest and market interventions were required to reduce the attractiveness of Swiss franc investments and counteract the upward pressure on the currency.

As usual, the Swiss National Bank conducts a policy which targets weakening the Swiss frank. This game has been played for quite some time now. The problem for Switzerland is that the safe haven status of the Swiss frank leads to the currency strength in every turmoil, dealing a blow to the Switzerland’s export-oriented economy.

Technical Analysis

Yesterday, I wrote that if USD/CHF managed to stay above the 50 EMA, it will test the next resistance level at 0.9750. The move was so significant that the pair easily breached the resistance at 0.9750 and reached highs at 0.9878. Later, USD/CHF attempted to continue the upside move with a high at 0.9889, but the broad pullback of the U.S. dollar led to weakness in USD/CHF.

At this point, the previous resistance at 0.9750 will serve as the first major support level for USD/CHF. If this resistance is breached, the next important support is at 50 EMA at 0.9665. On the upside, the pair will see increased resistance on its way to 0.9900. The upside trend in USD/CHF currently remains intact, but I’d note that the size of the recent move (from 0.9200 to almost 0.9900) is very significant so a pullback may be material as well, if it occurs.

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