August 12, 2021 15:11:47

The rejection of key levels in some of the majors points to more choppy trading in the dollar, albeit with a bullish tilt with the Fed in potential taper mode. But one of the more notable moves in these summer markets has been EUR/CHF falling to new multi-month lows at the start of this month and the subsequent bounce back.

CHF and SNB

A combination of elements has probably caused recent price action. These include the ECB’s new inflation policy which essentially points to low rates for longer. Perennial weak inflation in Switzerland also means that the swissie’s real trade-weighted strength is overestimated, hence why the SNB has possibly been more tolerant. Finally, although the new US administration has adopted a softer touch towards FX intervention, the Washington “threat” to countries who actively manage their FX policies is still highly pertinent.

Of course, many FX traders are constantly wary of SNB intervention, and rightly so when one considers that the bank bought CHF50bn just in the second quarter of last year. And right on cue, the latest weekly gauge does show the biggest weekly jump in sight deposits in two months. The safe-haven status of CHF may also have given the currency a bid, although market volatility has settled down again very recently.

Technical bounce in play

The dip out of the descending channel resulted in oversold conditions on the RSI and lower Keltner band. The retracement has moved back to the 50% mark of last year’s low to March’s high this year around 1.0829. The corrective bounce may have legs to run towards the 55-day SMA and June low at 1.0870, with support now at the mid-July low at 1.0804. The top of the channel comes in around 1.09.

If the SNB “line in the sand” is 1.07, then bears may struggle to run below here towards the mid-October 2020 low at 1.0688 which comes ahead of the November 2020 low at 1.0660.