Market Analysis

USDCHF: Rallied on disappointing Chinese economic data

Stock markets began the New Year with a tumble, driven by disappointing Chinese economic data released on early Wednesday, which saw Caixin manufacturing PMI slip into contractionary territory for the first time in 19 months, renewing concerns that a global trade war is weighing on growth and pushing investors towards less risky assets.

The USD index is up 0.90%, near 97.00 after dropping during the Asian session to 95.65 and continued to rise against European currencies despite the recovery in equity prices. The USD index is a measure of the value of the US dollar relative to the value of a basket of foreign currencies, often referred to as a basket of US trade partners’ currencies.

The Markit US Manufacturing PMI came in at 53.8 in December 2018, little changed from a preliminary estimate of 53.9 and below November’s final reading of 55.3. The latest data pointed to the weakest pace of expansion in the manufacturing sector since September 2017.  The manufacturing sector dominates a large part of the total gross domestic product (GDP), the manufacturing PMI is an important indicator of business conditions and the overall economic condition in the United States. Readings above 50 imply the economy is expanding, making investors understood it as positive for the USD, whereas a result below 50 points for an economic contraction, and weighs negatively on the currency.

On the other side of the Atlantic, the Swiss National Bank (SNB) kept the interest rate at -0.75% on December 2018, as widely expected. Officials said that the Swiss franc is still highly valued and the situation on the foreign exchange market continues to be fragile while gross domestic product (GDP) growth is likely to weaken slightly in 2019 amid global political uncertainties and protectionist tendencies.

The USDCHF began 2019 with the right foot rallying almost 0.8% and since the start of January as pushed higher with almost 0.8%. Nonetheless, the currency pair began the week above water with more than 0.5% gain and on the daily time-frame, closed well in the green with a gain of 0.8%. Furthermore, the USDCHF is in a distribution phase since late December 2018.

During yesterday session, the currency pair initially fell but found enough buying pressure 0.9796 to trim all of its losses and reverser consequently closed near the high of the day, in addition, managed to close above Monday high, which suggests a strong bullish momentum.

The stochastic is showing a strong bullish momentum although is still below the 50 midline, but managed to cross above the oversold zone.

After consolidating in late November 2018, the USDCHF turned south in early December and since then has been trading lower within a descending channel. A channel is drawn from trendlines charted along the support and resistance levels of a USDCHF price series. In general, channels can be used to identify trading signals at both support and resistant levels for securities with moderate volatility and regular oscillations over time. Now the currency pair is sailing toward the upward trendline but is facing a daily resistance at 0.9909 and a dynamic resistance provided by the 200-day moving average at 0.9899.


USD/CHF Daily Candlestick Chart

USD/CHF Daily Candlestick Chart 


Market Events to Watch: 


January 03, 08:15 GMT (03:15 ET): The Swiss Federal Statistical Office is scheduled to release the retail sales year-on-year in November, the previous period data was 0.8%. Generally, a higher than expected reading may be seen as positive for the CHF, while a lower than expected reading should be taken as negative for the CHF.

January 03, 08:30 GMT (03:30 ET): The Schweizerischer Verband für Materialwirtschaft und Einkauf and Credit Suisse are scheduled to release the SVME Manufacturing Purchasing Managers Index (PMI) for December, which is estimated by market analysts to decrease to 57.2 from 57.7 registered in the previous month. The Manufacturing PMI is an important indicator of production growth in Switzerland. A result that values above 50 signals appreciates the CHF, whereas a result that values below 50 is seen as negative.

January 04, 13:30 GMT (08:30 ET): The US Department of Labour is scheduled to release the nonfarm payrolls for December, which are estimated by marker analysts to increase to 178K from 155K registered in the previous month. Generally, a high reading is seen as positive for the USD, while a low reading is seen as negative, although previous months reviews and the unemployment rate are as relevant as the headline figure, and therefore market’s reaction depends on how the market assets them all.

January 04, 13:30 GMT (08:30 ET): The US Department of Labour is scheduled to release the unemployment rate for December, which is forecasted by marker analysts to come in at 3.7% unchanged compared to the previous month. A decrease in the figure is seen as positive for the USD, while an increase is seen as negative, although by itself, the number can’t determinate the market’s move as it depends on the headline reading, the nonfarm payroll.

January 04, 15:15 GMT (10:15 ET): The Federal Reserve (Fed) Governor Jerome H. Powell is scheduled to testify on the economic outlook and recent monetary policy actions before the Joint Economic Committee, in Washington DC. The testimony is in two parts; the first is a prepared statement, followed by a question and answers session. The Q&A portion of the testimony is usually accompanied by heavy market volatility.


Written by Hugo O’Neill, External Analyst


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