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  • USD/CHF broke above a key area of resistance around the 0.8920 level on Monday.
  • CHF is one of the worst-performing G10 currencies on Monday, down about 0.7% versus the US dollar.

USD/CHF broke above a key area of resistance around the 0.8920 level on Monday, a level that had acted as a ceiling to the price action since early December 2020, spurring a surge of technical buying that took the pair as high as the 0.8970 mark. To the upside, the bulls will be targeting a test of a key area of resistance in the form of the November 2020 low at around 0.8980, a break above which could open the door to further upside towards the psychologically important 0.9000 level.

The Swiss franc is one of the worst-performing G10 currencies on the day and is down about 0.7% on the day versus the US dollar, which translates into gains in USD/CHF of about 70 pips. At present, the pair trades in the 0.8960s, not far from highs of the day.

Driving the day

CHF losses come despite 1) a strong Swiss Manufacturing PMI number for January released early on during the European session (which rose to 59.4 from 58.0 versus expectations for a drop to 57.0) and 2) a fall in Swiss Sight Deposits, which indicates a less proactivity by Swiss National Bank in attempting to weaken CHF in the FX markets; on the latter, domestic bank sight deposits dropped to CHF 636.306B from CHF 637.423B a week earlier, while total deposits dropped to CHF 704.411B from 704.629B a week earlier.

Rather, the pair has traded predominantly as a function of US dollar inflows (which were exacerbated by technical buying in the USD/CHF currency pairing). In terms of the reason behind USD strength on Monday, there is no one theme or explanation at play, but market commentators are talking about 1) ongoing market nerves amid continued efforts by retail investors to influence the price action in small-cap, highly shorted stocks and also now silver markets and 2) growing expectations for US economic outperformance amid recent steps towards further fiscal stimulus and strong US data (today’s ISM manufacturing print contributing to this narrative).

On which note, ISM Manufacturing PMI data for January did not trigger much of a reaction; the index came in at 58.7, a little below expectations for a reading of 60 but still a very strong number, indicating that manufacturing activity continued to grow at a healthy pace in January. The New Orders subindex dropped slightly to a still-strong 61.1 from 67.5 in December and encouragingly, employment rose to 52.6 from 51.7, boding well for the manufacturing employment component of Friday’s official NFP data release. Finally, the Prices Paid subindex continued its rise, hitting 82.1, up from 77.6 in December, its highest level since April 2011.

USD/CHF key levels