US dollar falls against Swiss franc with nothing to drive it

During the trading session on Monday, the US dollar fell against the Swiss franc almost immediately during Asian trading, followed through during the European session as well. Currently, the market has reached a major inflection point and it looks as if we are starting to see nice resistance forming near the 1.01 handle.

Presidents’ Day

While not a major holiday, Presidents’ Day is being celebrated in the United States. Most Americans will be working, but banks will not be open. With that in mind, there will be very little in the way of liquidity during the North American session, basically leaving the Canadians in charge. This should ultimately work against the US dollar as there will be less monetary flow into the United States with stock markets closed, etc.

Lack of news flow

There isn’t much in the way of news flow over the next couple of sessions that should move the US dollar, so by default we will probably be focusing on other economies around the world. Remember, this pair tends to move inverse of the EUR/USD pair, which is showing signs of strength anyway. By doing so, that almost always naturally puts downward pressure on this pair. In fact, many traders make the mistake of paying far too much attention to the EUR/USD pair and ignoring this one altogether.

This pair tends to move a bit slower, but these days the EUR/USD pair has been inundated with high-frequency traders that have all but killed volatility. The USD/CHF pair tends to move in a more methodical manner. When you look at the lack of catalysts for US dollar strength, it makes quite a bit of sense that we may be failing to continue the upward trajectory at 1.01 as the angle of the most recent rally has been a bit extreme.

Technical notes

While the 200-day moving average is below current trading, we are most certainly overbought in general, and had even broken above the overbought line on the Relative Strength Index just a few short sessions ago. We are starting to roll over little bit in that indicator, so I think this signifies that we have some more negativity ahead of us. However, that doesn’t necessarily mean that we are going to collapse from here.

I see the 1.0000 level as offering a bit of psychological support, so care will have to be employed in that area. I suggest that perhaps the EUR/USD pair needs to break the highs of the last few sessions to give the go-ahead for this pair to continue lower. Once it does, the next major support barrier will be the 0.99 handle, a place where we have seen a bit of support and resistance as of late. Below there, we have the uptrend line that I have placed on the chart that has been rather reliable as well.

Because of the various targets that I have just mentioned, I suspect that this is probably a short-term pullback, and not necessarily the beginning of something much larger. That being said, if the EUR/USD pair does somehow manage to break out to the upside and clear the 1.15 handle, this pair will almost certainly break down rather drastically and well below the 0.9750 handle. As for the upside, I suspect that somewhere just above the 1.01 level should be massive resistance.

That’s not what I’m expecting at this point, but it is a piece of the puzzle that we should pay attention to. I do think it happens longer term, but with the flight to the US dollar as the global economy starts to slow down makes for a logical bid in the greenback overall. With that, it’s very unlikely that we are going to change trends right away. Later in the year though, the greenback is expected to weaken.

The Swiss franc isn’t what it used to be

It wasn’t that long ago that people bought the Swiss franc when they were worried about global growth as it was considered to be a safety currency. Unfortunately, with the turmoil in the European Union and the poor economic numbers, the Swiss franc finds itself at the mercy of EU fortunes by proxy. This is because 85% of Switzerland’s exports go to the EU, so if your largest customer is struggling, by default you will be as well. This is something to keep in mind as it is a characteristic of this pair that has changed quite drastically over the last couple of years. In other words, if there is some type of geopolitical event this pair will rise.

Another bogey with this could be if the United States and Chinese come to some type of agreement, it might lift the greenback momentarily. Currently, I suspect that will be short-lived though.