The US dollar initially fell against the Swiss franc but continues to show signs of life heading into the weekend.
USD/CHF
The US dollar initially fell against the Swiss franc, only to turn around and show signs of strength on Wednesday. And Thursday looks to be more of the same. We initially sold the US dollar, only to see the thing turn right back around and show signs of life.
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Ultimately, this is a market that has been very noisy, to say the least, as the announcement coming out of the US Treasury that they were going to double the buyback purchases next month of 30-year bonds punished the US dollar. But now it looks like the market is starting to rethink its positioning, at least against the Swiss franc, and the interest rate differential continues to be a strong driver here. Quite frankly, you get paid to hold this pair every day, and that is something that does add up over time.
I've been a big proponent of the carry trade for several months now, and I still am at this point. Granted, there are some concerns now with the dollar, but unless the Fed starts to cut, or it starts to collapse drastically, the overall mechanical nature of the carry trade will remain the same.
Carry Trade Dynamics and Key Fibonacci Support
It's worth noting that the 0.7950 level was also the 61.8% Fibonacci retracement level that we bounced from, and that's an area that's been important in the past. Overall, this is a market that I do like to the upside, but I recognize that the other day really rattled a lot of cages and probably had people switching positioning in other markets, which may have had a bit of a knock-on effect over here.
I don't like the Swiss franc in any scenario here other than some type of major financial crisis, which, although there are some hyperbolic headlines at the moment, there's no real concern about that, from what I can see from more reliable sources. Ultimately, this is a market that I'm bullish of. Today's action just shows more of the stabilization and perhaps the eventual turnaround.
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