Fundamental
Overview
The puzzling weakness in
the US Dollar following Trump’s victory looks more and more like it was just a
“sell the fact” reaction. The greenback is now back in the driving seat, and we
might have also seen some pre-positioning in the past couple of days into a
potentially hot US CPI report today.
At the latest Fed’s
decision, Fed Chair Powell said that they expect bumps on inflation and that
one or two bad data months on inflation won’t change the process. This keeps
the 25 bps cut in December in place even if we get higher inflation readings.
The market though is
forward-looking, and the rise in Treasury yields showed that the market sees
risks to the inflation outlook. Moreover, the red sweep could increase those
fears if the progress on inflation stalls, or worse, reverses.
The market might have
already assigned some premium to a higher than expected print, so there’s some
risk of a short-term “sell the fact” reaction on a higher than
expected number.
It goes without saying that
a bigger than expected upside surprise should see the momentum increasing
immediately with the US Dollar likely rallying across the board and Treasury
yields shooting higher.
On the other hand, a soft
print will likely see the US Dollar and Treasury yields falling, although one
can argue that it’s just going to provide a pullback to go long the US Dollar
and short bonds again at even better levels as future conditions will likely
see inflation getting stuck above the target or even moving back higher.
USDCHF
Technical Analysis – Daily Timeframe
USDCHF Daily
On the daily chart, we can
see that USDCHF broke through the key downward trendline
following Trump’s victory and, after a brief pullback, continued higher as the
trend in the US Dollar remains skewed to the upside.
We now have an upward
trendline defining the current bullish momentum. If we get a pullback, we can
expect the buyers to lean on it to position for a rally into new highs, while
the sellers will look for a break lower to pile in for a drop into the 0.85
handle.
USDCHF Technical
Analysis – 4 hour Timeframe
USDCHF 4 hour
On the 4 hour chart, we can
see that we have another minor upward trendline defining the bullish momentum on
this timeframe. The buyers will likely keep on leaning on it to push into new
highs, while the sellers will look for a break lower to start targeting new
lows.
USDCHF Technical
Analysis – 1 hour Timeframe
USDCHF 1 hour
On the 1 hour chart, there’s
not much to add here as the buyers will look for a bounce around the trendline,
while the sellers will look for a break. The US CPI report today is going to be
a major catalyst, so it would be better to wait for the release before taking
any position. The red lines define the average daily range for today.
Upcoming
Catalysts
Today, we have the US CPI report. Tomorrow, we get the latest US Jobless
Claims figures. On Friday, we conclude the week with the US Retail Sales data.