- USD / CHF has moved north of 0.8900 in recent trading in tandem with a broad recovery in the US dollar.
- A sense of risk aversion in trading appears to be supporting the USD rally.
The USD/CHF it has risen above the 0.8900 level in recent trading amid a gradual rally in the USD that has seen the dollar index rally back above the 91.00 level. As it is, the pair is trading with a gain on the day of around 0.3% or just over 20 pips.
Damaged US dollar regains some ground
USD / CHF was largely driven by USD flows on Wednesday, with the tone somewhat averse to market risk (the S&P 500 currently trading in the red along with crude oil markets) and CPI data. Softer-than-expected Chinese helped boost the dollar against most of its Asian and G10 counterparts. Given that the USD has taken such a heavy beating in recent weeks, and with short positions looking as stretched out as ever, perhaps it is time for the markets to see a respite from the USD.
Meanwhile, the USD remains focused on political events in the United States. On the fiscal stimulus front, the House of Representatives is scheduled to vote on a short-term spending bill on Wednesday to avoid a government shutdown at the end of the week and the Senate could vote on this bill as well ( markets expect an avoided closure). Meanwhile, the positive momentum towards a fiscal stimulus package appears to continue to grow, with US Treasury Secretary Steven Mnuchin saying that 90% of the stimulus package could be agreed upon by the end of the day. Any sign that a deal is about to be struck could end the USD rally.
Staying on the subject of American politics, one factor that has passed completely under the market radar is the fact that Texas filed a case in the Supreme Court against Georgia, Michigan, Pennsylvania and Wisconsin calling for the results of the elections to be annulled. Elections in those Texas states now apparently have the support of Alabama, Arkansas, Florida, Kentucky, Louisiana, Mississippi, Missouri, South Carolina, South Dakota, and Tennessee.
“The markets don’t know how to price these kinds of risks … They’ll ignore it until the last second – but if we get a surprise result, prepare for the resulting surprises,” says Rabobank. Any surprise on this front looks likely to be USD positive, that’s for sure.
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