USD/CHF has “risk off” written all over it

The chart of the USD/CHF has “risk-off” written all over it. Yet equity markets continue to remain resilient, with the UK’s FTSE 100, for example, climbing to a new record high earlier today. The German DAX index and the major indices on Wall Street are all near their own record levels. But with the Swiss franc, Japanese yen and precious metals – all perceived safe-haven assets – strengthening, and crude oil falling again, equity markets could be in for a long overdue correction. So far, though, there hasn’t been a clear-cut trigger to push stocks down, but they could fall anyway due to seasonality factors now that we are heading into the summer months, a period when stocks don’t tend to perform very well.

The chart of the USD/CHF has “risk-off” written all over it. Yet equity markets continue to remain resilient, with the UK’s FTSE 100, for example, climbing to a new record high earlier today. The German DAX index and the major indices on Wall Street are all near their own record levels. But with the Swiss franc, Japanese yen and precious metals – all perceived safe-haven assets – strengthening, and crude oil falling again, equity markets could be in for a long overdue correction. So far, though, there hasn’t been a clear-cut trigger to push stocks down, but they could fall anyway due to seasonality factors now that we are heading into the summer months, a period when stocks don’t tend to perform very well.

As for as the USD/CHF is concerned, well this FX pair has broken down several support levels in recent times. Put another way, it has incurred a lot of technical damage to say anything bullish about it at this stage. Indeed, with the bullish trend line broken, and the 50-day moving average crossing below the 200, the bias is clearly bearish. As such, we could see further falls in the days ahead.

The Sissy was still looking heavy at the time of this writing as it was trading near the day’s low. The key risk to this bearish outlook would be if US economic data in the days ahead come in significantly better than expected. Also worth noting is the area between 0.9640 and 0.9670, which had been strong support in the past and so it may act as a floor again, at least in the short term anyway. However if this area also gives way then the Swissy could be heading significantly lower, with the first bearish objective being at 0.9550. 

Join our live webinars for the latest analysis and trading ideas. Register now

GAIN Capital UK Limited (trading as “City Index”) is an execution-only service provider. This material, whether or not it states any opinions, is for general information purposes only and it does not take into account your personal circumstances or objectives. This material has been prepared using the thoughts and opinions of the author and these may change. However, City Index does not plan to provide further updates to any material once published and it is not under any obligation to keep this material up to date. This material is short term in nature and may only relate to facts and circumstances existing at a specific time or day. Nothing in this material is (or should be considered to be) financial, investment, legal, tax or other advice and no reliance should be placed on it.

No opinion given in this material constitutes a recommendation by City Index or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although City Index is not specifically prevented from dealing before providing this material, City Index does not seek to take advantage of the material prior to its dissemination. This material is not intended for distribution to, or use by, any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation.

For further details see our full non-independent research disclaimer and quarterly summary.