The USDCHF continues its descent, despite massive intervention from the Swiss National Bank (SNB). The SNB revealed recently that in 2020 its FX interventions surpassed the level in 2015 when it was forced to give up the EURCHF 1.20 exchange rate floor.
Yet, the demand for CHF is surging, even though the SNB imposes the lowest interest rate on record – negative 0.75%. If we compare the USCHF price action with the EURUSD, we see that the USDCHF declined faster than the EURUSD advanced. As such, the price action differential appears on a bearish EURCHF market move.
But there is more than meets the eye on the USDCHF. Two things should catch the attention of courageous bulls. First, the pair meets the magical 0.90 level – a round number from where it bounced once in the past. Second, on a new lower low on the daily chart, the chances grow for a bullish divergence to form.
The decline in the USDCHF pair has much to do with what is happening in America. Ever since this week started, the pair is down two hundred pips due to elections’ uncertainty. On the one hand, the uncertainty leads investors to buy safe-haven currencies like the CHF or the JPY. On the other hand, the weak USD trend visible across the board puts further pressure on the USCHF pair. Until we know the winner of the US elections, the trend will likely continue.
A possible bullish divergence forms on the daily chart. This is quite a big timeframe and should be treated as such. Moreover, any long trade should be considered contrarian. Hence, the risk or the volume traded must be adjusted appropriately.
On a move below the 0.90 level, bulls may try a contrarian trade. They may want to wait for such a step and then for a bounce. This way, the divergence is in place. Next, bulls may want to place a pending buy stop order at 0.91 with 0.90 stop and target a move back to 0.93.
