USD / CHF recovers from brief dip below 0.8900

• USD / CHF momentarily fell below the 0.8900 level in previous trading for the first time since January 2015.
• Broad USD weakness is the cause of the decline, and CHF is holding up well despite strong appetite for risk.

Broad USD weakness on Thursday is to blame for the continued march of the USD/CHF to the south, with the pair momentarily falling below 0.8900, before recovering back to current levels around 0.8910. On the day, the pair is trading with losses of around 30 pips or 0.3%.

CHF performs well despite risk appetite in markets

In general, risk assets have performed well so far this week. Major US stock exchanges are vastly higher, as are crude oil markets and US bond yields. Boosting the appetite for risk have been the typical culprits; Optimism about vaccines as the UK and US rush to launch mass vaccination programs later this month, optimism about US fiscal stimulus as Democrats and Republicans speak again, as well as stronger-than-average US economic data. expected.

The USD and JPY are unsurprisingly performing poorly in such conditions and are at the bottom of the G10 performance chart for the week so far. One might expect the CHF to sit right there at the bottom of the G10 chart alongside its other safe-haven currencies, but this has not been the case this week.

Unlike the JPY (which is only 0.1% higher than the USD), the CHF is up almost 1.5%. Strong data on multiple fronts appears to be helping; On Monday, retail sales saw a decent jump in October to a 3.1% year-on-year rate from 0.4% in September, KOF’s leading indicator for November fell less than expected to 103.5 from 106.3. On Tuesday, GDP data for the third quarter was much better than expected (7.2% qoq versus 5.9% expectations), as was procure.ch’s PMI, which hit 55.2 in November versus expectations from a drop to 51.3 from 52.3.

Meanwhile, the country remained in price deflation, with a year-on-year price growth rate in November of -0.7% versus expectations of a 0.5% price drop. While this could be viewed as negative (as softer-than-expected inflation often precedes dovish central bank action), it should be noted that the SNB is largely powerless at this point, with interest rates deep in the water. negative territory and already carrying out a foreign exchange intervention to try to weaken the CHF.

Basically, that means markets lack confidence in the SNB’s ability to bring inflation back to its target. Remember that deflation actually means that the value of money is increasing over time, so a lack of confidence in the SNB’s ability to prevent the value of CHF from continuing to rise over time could be the factor helping the CHF to overcome this week.

USD / CHF with room for further decline

USD / CHF is trading at levels last seen in the weeks after the 1.20 EUR / CHF removal (CHF experienced extreme volatility after removal, with USD / CHF falling to 0.8300 from above 1.00 before reversing virtually all of the move). Having dipped below 0.8900 this week, the door has been opened for a steady grind back towards 2015’s 0.8300 lows in the coming months (or even years), given the lack of significant support levels in the interim.

USD/CHF