USDCHF coils ahead of a potentially explosive move

The dollar has turned modestly lower after starting the day firmer following yesterday’s gains on the back of a solid ISM manufacturing PMI report. At the time of this writing, the EUR/USD had recovered from around 1.1700 earlier this morning to trade at 1.1750; the heavily-pressured GBP/USD had also managed to bounce back a tad, while the USD/JPY was still clinging onto its gains after giving back some of its earlier gains. Today’s lack of major economic news meant the movements in the currency markets were mostly due to technical buying and selling, and positioning ahead of key US data later on in the week. The key ISM services PMI and ADP private sector payrolls report will be released tomorrow, while the all-important September non-farm payrolls report is due for release on Friday.

One interesting dollar pair to watch this week is the USD/CHF. The Swiss has been pushing higher in recent weeks as the dollar recovered while expectations that the Swiss National Bank will hold its policy extremely accommodative has weighed on the Swiss franc. But despite the divergence in monetary policy between the two nations, the USD/CHF has not been able to clear strong resistance around the 0.9770 area. Here, it has found strong selling pressure on several occasions and this morning’s breakout attempt has seemingly failed once again, perhaps unsurprisingly so ahead of key US economic data this week.

So, what are we looking for in the USD/CHF? From a bullish perspective, we are looking for a clean break above the 0.9770 resistance, which would then confirm the reversal we saw around the 2016 low of 0.9445 area earlier last month. If this scenario plays out, then the USD/CHF may climb towards its next reference points, starting at 0.9850, followed by 1.0050 next. Meanwhile from a bearish point of view, we would like to see a clean break below 0.9670, which was the low prior to the latest rally. If this level breaks then another attempt to take out the 2016 low may be on the cards in the coming days.