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USD/CHF Price Outlook Bearish as US Dollar Selloff Gains Pace

USD/CHF Price Outlook Bearish as US Dollar Selloff Gains Pace

2019-10-17 17:17:00
Rich Dvorak, Analyst
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USD/CHF PRICE OUTLOOK: US DOLLAR COULD FALL FURTHER AGAINST SWISS FRANC

  • USD/CHF could extend its selloff as US Dollar downside accelerates with the currency pair treading water below key technical support levels
  • The historically negative correlation of USD/CHF with EUR/USD and GBP/USD suggests weakness in spot USD/CHF price action may continue
  • Download our free 4Q-2019 Forecasts & Trading Guidesfor comprehensive fundamental and technical insight on the US Dollar

US Dollar selling pressure has accelerated over the last few days and has sent the DXY Index plunging below the 98.00 handle as the popularly refenced basket of major USD currency pairs takes a nosedive through major technical levels. Recent downside in the DXY US Dollar Index has been driven primary by an influx of Brexit deal optimism that has led to serious strength in EUR/USD and GBP/USD, which combined make up roughly 70% of the DXY Index.

USD/CHF PRICE CHART WITH EUR/USD & GBP/USD OVERLAY: DAILY TIME FRAME (AUGUST 15, 2018 TO OCTOBER 17, 2019)

USDCHF Price Chart Correlation with EURUSD and GBPUSD

Chart created by @RichDvorakFX with TradingView

As illustrated in the chart above, spot USD/CHF tends to hold an inverse relationship with spot EUR/USD prices. Also, the correlation between spot USD/CHF and spot GBP/USD appears to be returning to its typically negative reading. That said,there is potential that the selloff in spot USD/CHF has room to run as the Swiss Franc catches up to the recent Brexit-led rallies in the Euro and Pound Sterling.

Contagion of US Dollar weakness already appears to be spreading and is threatening the greenback’s bullish trend as the world’s reserve currency stumbles against its primary counterparts. Spot USD/CHF price action provides the latest example of this as the Swiss Franc’s sizable rally against the US Dollar over the last 2 trading sessions has sent the forex pair cratering below its 3-month long uptrend support line.

USD/CHF PRICE CHART: DAILY TIME FRAME (APRIL 17, 2019 TO OCTOBER 17, 2019)

USDCHF Price Chart Technical Analysis

USD/CHF weakness began after spot prices briefly breached parity earlier this month as the US Dollar Index climbed to a fresh year-to-date high. Though the rejection at this psychologically-significant technical level seems quite notable seeing that confluent support provided by the midpoint retracement of its 2019 trading range as well as the 200-day simple moving average failed to stymie the pivot lower in spot USD/CHF.

Moreover, the pickup in bearish momentum is evidenced by negative divergence on the MACD indicator while the RSI has sunk well below 50. Still, USD/CHF bulls could potentially look to technical support near the 0.9850 price zone, which is noted by the intraday lows printed on September 13, 24 and 25. Also, USD/CHF has breached the lower bound of its Bollinger Band as spot prices have moved more than 2-standard deviations away from its 20-day SMA. This could suggest that a mean-reversion back higher may be in the cards so long as the US Dollar can maintain its broader uptrend.

USD/CHF PRICE CHART: WEEKLY TIME FRAME (NOVEMBER 05, 2017 TO OCTOBER 17, 2019)

USD/CHF Price Outlook Bearish as US Dollar Selloff Gains Pace

Technical confluence roughly around 0.9850 is also underpinned by the 38.2% Fibonacci retracement of spot USD/CHF’s year-to-date trading range (noted previously on the daily chart) as well as the 38.2% Fib of its trading range since 2018 (shown above on the weekly chart). This major technical level is also highlighted by the weekly 20-SMA and 200-SMA. If this area of support fails to keep spot USD/CHF price action afloat, the currency pair could continue edging lower toward its broad uptrend line extended from the February 2018 and August 2019 lows.

For additional technical outlook on the US Dollar and Swiss Franc, check out USD/CHF, EUR/CHF Weekly Forecast: Correction May Lead to a Downtrend Move.

-- Written by Rich Dvorak, Junior Analyst for DailyFX.com

Connect with @RichDvorakFX on Twitter for real-time market insight

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

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