Potential signal:
- I am a buyer of the USD/CHF pair at the current level, but I would have a stop loss near the 0.7990 level.
- If the market can break above the 0.8150 level, then I am adding to the trade, roughly 20% of the initial position, and aiming for the 0.83 level.
The US dollar has rallied slightly against the Swiss franc during the trading session on Monday as we continue to see the markets wait for some type of external pressure to get moving. Ultimately, this is a market that is hovering around the 50 Day EMA, an indicator that of course attracts a lot of attention from a longer-term standpoint. It’s worth noting that the 50 Day EMA is flat, and this suggests that the market is essentially range bound.
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That would make a lot of sense, because most of the markets that I look at currently are fairly tight in their bound attitude. That being said, the market is going to continue to be very choppy and noisy, and I think we are going to watch quite closely the attitude of Federal Reserve speakers and of course the Fed Funds Futures markets, which will price in the likelihood of interest rate hikes or cuts in the United States. As things stand right now, it looks very much like a market that believes the Federal Reserve will in fact cut interest rates in September, possibly again in December.
Technical Analysis
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Speaking of the 50 Day EMA, the market itself has been flat for a moment here, as we are sitting above the 0.80 level, which of course is a large, round, psychologically significant figure, and an area that seen a lot of noise in the past. With this, I think it is probably only a matter of time before we have to make a bigger move, but you also have to recognize the fact that this is the time of year that tends to be fairly quiet. If we were to break down below the 0.80 level, that would obviously be very negative and could send this market toward the 0.79 level.
On the other hand, if we can break above the 0.8150 level, that could open up quite a bit of bullish pressure, and I do think at this point in time it’s likely that the market will continue to favor the US dollar, perhaps opening up a move to the 0.83 level. I do like buying this pair in general, mainly because of the interest rate swap differential.
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