Dollar Continues to Grind Against Franc

• US dollar has positive week
• 50 and 200-day EMA converging
• 50% Fibonacci holds as support

The US dollar has rallied slightly during the trading session on Friday as we are starting to run out of steam against the Swiss franc again. Having said that, the market is looking very much like a market that is trying to build up a bit of a base after bouncing from the 50% Fibonacci retracement level. With that in mind, it makes sense that the market could try to reach towards the heights again, as a 50% Fibonacci retracement level is an area where a lot of people pay specific attention to in a security.

The US dollar course has one major advantage over the Swiss franc these days: it’s not attached to Europe. Switzerland sends almost 85% of its exports into the European Union, which has a whole host of issues. Beyond that, the Swiss also feature negative interest rates in the bond markets, and that certainly works against the value of the underlying currency. Ultimately, this is a market that is looking at interest rate differentials as it grinds to the upside.

Technical analysis

Looking at the technical analysis, the 50% Fibonacci retracement level has held quite nicely a couple of times now, showing significant support at the 0.9850 CHF level. That area is essentially the “floor” of the market right now and could be the beginning of a major rectangle forming between that level and the 1.0000 CHF handle. At this point, with the moving averages flattening out, that makes the most sense in the short term. That being said, it’s only a matter time before the market breaks out in one direction or the other, and in this scenario, it seems to be likely that the market breaks to the upside.

If the daily candle were to close above the recent high at the 1.00345 level, then it could open up the door to the 1.02 CHF level. In the short term, don’t be surprised to see some type of pullback, but that should offer a bit of value, especially if the bond market starts to rally in the United States.

The alternate scenario would be a breakdown below the 50% Fibonacci retracement level, showing signs of trouble and perhaps to reach down towards the 0.98 CHF handle, as the market would go looking for the 61.8% Fibonacci retracement level, and the next support level. This is an area that has caused the market to bounce in the past.

Going forward

This pair is very likely to continue chopping back and forth as the market tries to figure out where the next move is going to. Ultimately, this is a market that tends to do quite a bit of chopping, but in the end, it looks as if we are building up a significant amount of momentum to try to break out to the upside and continue the overall move. With that, smaller position sizing may be called for when trading the Swiss franc at the moment.