USD/CHF creeps back above 0.8900 as DXY recovers above 91.00

• USD/CHF has moved to the north of 0.8900 in recent trade in tandem with a broad recovery in the US dollar.
• A risk averse feel to trade seems to be supporting the USD’s recovery.

USD/CHF has crawled higher above the 0.8900 level in recent trade amid a gradual recovery in USD that has seen the Dollar Index recover back above the 91.00 level. As things stand, the pair trades with gain on the day of around 0.3% or just over 20 pips.

Damaged US dollar claws back some ground

USD/CHF has largely been driven by USD flows on Wednesday, with the market’s somewhat risk-averse tone (the S&P 500 currently trades in the red alongside crude oil markets) and softer than expected Chinese CPI data helping to give the buck a lift against the majority of its G10 and Asian counterparts. With USD having taken such a beating in recent weeks, and with short positions looking as stretched as ever, perhaps it is about time markets saw some USD respite.

Meanwhile, USD remains focused on political events stateside. On the fiscal stimulus front, the House of Representatives is set to vote on a short-term spending bill on Wednesday to avert a government shutdown at the end of the week and the Senate could also vote on this bill (markets expect a shutdown to be averted). Meanwhile, positive momentum towards a fiscal stimulus package appears to still be growing, with US Treasury Secretary Steven Mnuchin saying that 90% of the stimulus package could be agreed upon by the end of the day. Any sign that a deal is on the cusp of being reached might take the wind out of this mini-USD recovery’s sails.

Sticking with the theme of US politics, one factor that has gone completely under the market’s radar is the fact that Texas filed a case with the Supreme Court against Georgia, Michigan, Pennsylvania, and Wisconsin calling for the election results to be overturned in those states. Texas is apparently now supported by Alabama, Arkansas, Florida, Kentucky, Louisiana, Mississippi, Missouri, South Carolina, South Dakota, and Tennessee.

“Markets don’t know how to price these kinds of tail risks… They will ignore this right up until the last second: but if we get a surprise result, be ready for resulting surprises” says Rabobank. Any surprises on this front seem likely to be USD positive, that much is for sure.