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  • USD/CHF bears are lurking, fixated on bearish prospects for DXY.
  • A dysfunctional bond market is a canary in the mine for the US dollar.

USD/CHF has spiked higher on Thursday in complex and fluent market conditions with volatility through the roof in the FX space. USD/CHF, now trading at 0.9855, a touch below the 0.9877 highs, has surpassed the late Feb highs and testing a key resistance/prior support structure. Could this be the final stretch before a correction in the price?

The US dollar, in a drive for cash and deleveraging markets, has broken into the 102 handle in the DXY in a phenomenal rally, reminiscent of the 2008 rally and same market conditions. The canary in the mine was the FX swap market as the Europan banks gobbled up the swap lines from the Federal Reserve, the most since 2008, forcing the Fed to intervene with unprecedented open market operation in the repo market to sure up dollar liquidity. Regardless of the action, the dollar has rocketed with the promises of central bank stimulus falling on deaf ears. 

A bearish case for USD/CHF

Meanwhile, however, US treasury yields have seen a year’s worth of action in the space of the last few weeks and they have now bounced back even as the Federal Reserve is buying $40 billion in bonds each day. This is a sign of a dysfunctional bond market and another canary in the mine for the US dollar. This could all equate to a drop in the value of the greenback as dealers pull the bid out of US Treasuries whereby surplus foreign sovereigns can no longer afford to lend to the US government while attempting to fix their own houses. Helicopter money can only be deflationary for the US dollar which could be as a consequence of the White House’s bid to boost the economy by sending out cheques to individuals either laid off from work, in self-quarantine or in lockdown, as ordered to be by their State. 

The Swiss franc is a safe haven currency and is prone to rally hard when the US falls, in tandem with the euro due to its trading ties with the eurozone. The euro makes up for the majority of the weighted currencies in the DXY, so a fall in the DXY will usually equate to an immediate bid in the euro. On the other hand, should stock markets continue to fall towards 2008 lows, there is a lot of ground yet still to cover, some 65% in the DJIA for example. As investors seek out cash to cover the margin calls or sell-out completely, we could still see some demand for the US dollars until the cat is finally let out of the bag and the bond bubble well and truly pops. 

USD/CHF levels

USD/CHF could find some support on a meaningful correction back to the 96.10/50 supporting levels which would tie in with a 38.2% Fibonacci retracement level at 96.07. The Volume Point of Control level of the V-shape drop and pop on the 4-hour time frame is located down at 95.60. On the upside, bulls can seek out 1.002 double top highs.