Dollar Weakness Keeps USD/CHF Under Pressure
London (May 25) USD/CHF declined to set a low for the session at 0.9700 in today’s trading and is currently trading off the low at 0.9726, a loss of 0.05% from Wednesday’s North American close. Despite the rebound from the session low, upside momentum appears lacking and a return to or break below the 0.9700 level in today’s trading cannot be ruled out.
With Switzerland on holiday for Ascension Day, there were no economic releases on the calendar. Thus, the weakness in the pair can be attributed to the dollar, which reacted negatively to yesterday’s release of the minutes from the Federal Open Market Committee’s (FOMC) May meeting. The US dollar index (DXY), which measures the greenback’s strength against a basket of six major currencies, dipped from 97.40 to 97.09 upon the release of the minutes at 14:00 ET, and maintained a downside bias into today’s trading, reaching 96.88 for a low. At present, DXY is rebounding and trading at 97.14, up a minor 0.04% from Wednesday’s close.
The minutes were less hawkish than what was anticipated by the markets. Although a rate hike is still expected in June, as most FOMC saw tightening soon as appropriate, greater caution was noted regarding rate hikes beyond June in 2017. Specifically, members generally judged that it would be prudent to await additional evidence indicating that the recent slowing in the pace of the economic activity had been transitory before taking another step in removing accommodation. FOMC members generally reiterated their support for a continued gradual approach to raising the Fed funds rate. At present, Fed fund futures are pricing in an 83.1% probability of a rate hike on June 14th. However, the probability of another rate increase at the September meeting stands at 25.8%.
USD/CHF has been unable to muster any sustained upside momentum in reaction to what became a fully oversold condition in mid-May, according to the depressed reading on the Stochastic, a price momentum indicator. A brief rebound on Tuesday of this week met resistance near the mid-point of May 19th’s long red candle on the daily chart. Thus, no improvement in the pair’s technical condition took place as a result of the rebound. USD/CHF has lost approximately 3.7% since establishing the May 10th rally high. And, further weakness in the pair is expected.
Below Monday’s low at 0.9692 low, the next level of support for USD/CHF is at the November 4th low at 0.9679. However, the ability of this level to hold appears highly questionable. Thus, the current target for the pair is at the November 9th spike low at 0.9549, which was established at the time of the US Presidential election. With USD/CHF breaking solidly below the 61.8% retracement level of the advance from the November 9th low to the December 15th peak, an eventual decline to this spike low is expected.
On the upside, first resistance is at the 0.9763-0.9776 zone. Failing to move above this area on a sustained basis on any near term rebound attempts will keep the bias firmly to the downside. And, at present, periods of strength appear best used as selling opportunities.
There are no economic releases out of Switzerland during Friday’s session. In the US, today’s calendar includes weekly jobless claims will be reported at 08:30 ET, along with Adv. International Trade in Goods and Adv. Wholesale Inventories. Friday’s US calendar includes Durable Orders, and the second estimate for Q1 GDP, both of which are due at 08:30 ET. Both reports may be market movers.
Durable Orders is expected to come in at -1.8% for April, following a reading of 0.7% in March. Durable Goods-ex transportation is forecast to come in at 0.4% for April following a reading at -0.2% in March. The consensus estimate for GDP is 0.8% following a prior reading at 0.7%. Then at 10:00 ET, the University of Michigan Consumer Sentiment Index, final for May, will be reported. A reading at 97.5 is expected, following a prior reading at 97.7.
On Friday at 15:30 ET, the weekly Commitment of Traders report from the Commodity Futures Trading Commission will be released with data as of the May 23rd close. The previous report, with data as of the May 16th close, indicated that large speculators were net short Swiss franc futures by 21,172 contracts. This represents an increase in net short positioning from 15,196 contracts the week prior and is the largest short position held by large speculators since December 13, 2016.
Source: EconomicCalendar
