(04 April 2018)DAILY MARKET BRIEF 1:USD/CHF better bid despite escalating trade war

During the Asian session, the US dollar lost some ground against the Swissie with USD/CHF easing to 0.9576, down from yesterday high of 0.9597. However, it looks more like a consolidation, reflecting investors’ caution in uncertain investment condition, namely the escalating trade war between China and the USA. Nevertheless, the situation didn’t prevent traders to build long USD/CHF positions as the currency pair increased more than 4.40% since mid-February, rising from 0.9188 to 0.9597.

The pair is on the cusp of testing the 200dma resistance level that currently stands at 0.9658. Given the positive development in the option market, together with the increase in short CHF positioning, there is a good chance that resistance would be broken to the upside. The 25-delta risk reversal measure has been continuously improving across all maturities since mid-February. The 1-month gauge rose from -1.18% to -0.62% yesterday, while the 6-month one jumped from -1.36% to -1.03%. The latest CFTC speculative positioning data puts CHF net short positioning at 21% (of open interest), compared to 10% the previous week.

Finally, the escalating tensions between China and the USA did not triggered a rush towards safe haven assets, which suggests that investors are confident that the world largest economic would be able to bear the economic choc. USD/CHF is currently trading at 0.9588 and the momentum firmly positive.

By Arnaud Masset