USDCHF Update: Market participants took profit from the US dollar after the Fed’s highly anticipated rate hike. But USD/CHF could be up for more volatility on the SNB interest rate decision. Let’s use the IDDA technique to develop a trading strategy for this naughty pair.
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1- USDCHF Technical Analysis
The USD/CHF pair saw sharp declines on Wednesday, breaking below the key pivot level and 23% Fibonacci retracement of 0.9888. This happened after the pair was supported by the upper band of the daily Ichimoku cloud for the past two weeks.
The pair has already created a lower high comparing to the highs of the end of October. Combining that with that fact that the pair is now trapped inside the Ichimoku cloud shows that the market is indecisive about a solid future trend.
However, it is likely that the pair could reach the next pivot level at 38% Fibonacci of 0.9798 over the upcoming event risk.
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This brings us to the second point of the IDDA; Fundamental analysis.
2- USDCHF Fundamental Analysis
For this, we need to analyze the economies of this pair’s respective currencies.
US Side:
The Federal Reserve raised rates by 0.25% as was widely expected. They also reaffirmed their intention to raise rates three times next year. Regardless, as we predicted, market participants decided to take profit from USD and that’s why we saw a massive dip in the USD crosses.
Besides this and on a political front, U.S. lawmakers were able to come up with legislation on a tax deal. This new deal would be up for final voting next week.
However, current Fed head Janet Yellen clarified that this could merely lead to a short-term economic boost. Not too optimistic on her final days, eh?
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On the economic calendar on Thursday we have the weekly US jobs report, as well as their retail sales data for the month of November. These could put additional pressure on Ms. USA (aka US dollar) if they are printed worse than market expectations.
Swiss Side:
On Thursday, it’ll be SNB Chairman Thomas Jordan’s turn to announce their rate decision. For this one, no actual changes are expected.
The Swiss National Bank (SNB) rarely makes any policy adjustments. That is except the major shocker back in 2015 and a few rate cuts to negative territory.
It is widely expected that the SNB would maintain rates at -0.75%, which means that market participants might instead take their cues from the press conference that will follow.
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More on the Economic Calendar
We have so much more on the economic calendar on Thursday.
We have Bank of England’s Bank Rate decision at 12 PM. BOE is expected to keep rates unchanged at 0.50%. But it doesn’t end here.
Right after that at 12:45 PM, European Central Bank Rate Decision will be released. ECB President Draghi will hold a news conference next at 1:30 PM GMT in Frankfurt.
While these may not directly impact the USDCHF pair, there is a chance of indirect volatility in the pair.
3- Market Sentiment Analysis
The third point of IDDA looks at market sentiment. On Wednesday, retail trader data showed 64.8% of traders are net-long the USD/CHF pair. In fact, traders have remained net-long since Nov 17 when USDCHF traded near 0.98968.
We typically take a contrarian view to crowd sentiment, and the fact traders are net-long suggests USDCHF prices may continue to fall. Traders are further net-long than yesterday and last week, and the combination of current sentiment and recent changes gives us a stronger USDCHF-bearish contrarian trading bias.
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Final Thoughts…
As the 4th point of the IDDA technique, you must calculate your risk tolerance before deciding on the investment strategy that is suitable for your portfolio.
While the market sentiment appears to be bearish, any trading strategy for the pair remains high risk due to the heavy economic calendar.
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