Another week comes to a close and as the weather heats up here in London it seems the markets are getting hotter also. There have been plenty of interesting developments and noteworthy moves this week. However, in FX especially, it seems the big move that has captured trader’s attention is the huge rally we’ve seen in CHF, in particular the almost 4% drop in USDCHF. So, let’s take a look at what caused the move and, as ever, if you caught the move? Well done. If you missed it? There’s always next week.
What Caused the Move?
Surprise SNB Rate Hike
The main driver behind the 400-pip drop in the Swissy this week was the surprise rate-hike announcement from the SNB. The central bank was not pegged to move rates this week. While there was some chatter ahead of the event, on the back of recent hawkish comments from SNB members, consensus forecasts were for an unchanged decision. Mainly, the thinking was that the SNB tends to follow the ECB and so was unlikely to change rates until after the ECB July hike.
However, with inflation surging ahead, the SNB opted to take pre-emptive measures and lift rates by 0.5%. With this hike, the SNB has now shifted rates from being the lowest in the world at -0.75% to -0.25%. Looking ahead, the SNB signalled the likelihood of further rate hikes if necessary and refrained from commenting on the value of the Franc, which CHF bulls took as a greenlight to pile into the currency.
USD Falls Post-FOMC Hike
Along with the rally in CHF, USD has been under pressure this week on the back of the FOMC meeting Wednesday. The dynamic in USD speaks of “buy the rumour sell the news” as USD rallied on expectations of a larger .75% hike then fell once the hike was delivered. With the SNB and BOE hiking this week also, the RBA hiking last week and the ECB expected to hike in coming weeks, USD has lost its monetary policy divergence advantage.
Looking ahead, USDCHF looks vulnerable to further losses. The sell-off in risk assets amidst growing central bank tightening looks likely to drive safe haven flows towards the Franc now, over JPY and USD near-term.
Technical Views
USDCHF
The reversal from 1.0053 has seen the market cratering lower towards the .9561 level. This support can be seen as the neckline of a large double-top pattern with a break of the level suggesting room for a much deeper reversal lower towards .9439 and .9189 thereafter, in line with MACD and RSI which have turned bearish. If .9561 holds, we will likely see range play develop between there and 1.0053.
Disclaimer: The material provided is for information purposes only and should not be considered as investment advice. The views, information, or opinions expressed in the text belong solely to the author, and not to the author’s employer, organization, committee or other group or individual or company.
Past performance is not indicative of future results.
High Risk Warning: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 75% and 75% of retail investor accounts lose money when trading CFDs with Tickmill UK Ltd and Tickmill Europe Ltd respectively. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.
Futures and Options: Trading futures and options on margin carries a high degree of risk and may result in losses exceeding your initial investment. These products are not suitable for all investors. Ensure you fully understand the risks and take appropriate care to manage your risk.
With 10 years of experience as a private trader and professional market analyst under his belt, James has carved out an impressive industry reputation. Able to both dissect and explain the key fundamental developments in the market, he communicates their importance and relevance in a succinct and straight forward manner.