USD/CHF: Bulls stepping up the pace in risk-off flows into USD
- USD/CHF is moving higher towards a prior resistance in a solid correction of the Dec 2019 downtrend.
- The US dollar has taken up a safe haven bid due to the threat of the coronavirus.
- DXY marches on to test 98 the figure and is technically positioned for further advances.
USD/CHF is defying gravity in a series of consecutive daily gains within its rally from the lows of 31st Dec and this is in spite of the lowest levels in the ten-year treasury yield since 9th October of last year. The story here is that of risk-off. Markets are fearful of the extent to which the coronavirus could spread and the contagion threat in global financial markets.
The number of known cases of the new virus rose by nearly 60% overnight and die to a shortage of test kits has led experts to warn that the real number may be higher. Germany, Japan and Taiwan report first coronavirus patients who didn’t visit China. However, and surprisingly, US benchmarks are in positive territories, although the divergence between rates and stocks will likely be a weight on the benchmarks, potentially supporting the likes of the CHF and yen on any significant downside correction.
The US dollar is serving its role as the world's commodity and safe-haven currency and the far factor is reflected in the US bond market, pricing out the prospects of rising inflation for this year and considering a dovish tone at the Federal Reserve meeting this week. Nonetheless, the geopolitical and global health threat leaves the dollar as the base case best-of-a-bad-lot trade.
Analysts at TD Securities argued that the funds rate will almost certainly be left unchanged and that FOMC statement tweaks are likely to be minor. "Policy will likely still be described as "appropriate" but with officials also still in "monitor[ing]" mode, consistent with an easing bias. Separate implementation note likely to include 5bp rise in the IOER, with the change downplayed as technical."