USD/CHF bulls taking over as US dollar firms ahead of central bank meetings
- USD/CHF bears face a tough time ahead in light of covid-19.
- Super Thursday will be an important day for CHF.
USD/CHF is trading higher by some 0.16% at the time of writing and between a low of 0.9188 and a high of 0.9244. The price action is in favour of the bulls as we head towards the Federal Reserve on Wednesday.
US dollar the favourite safe haven
Meanwhile, there is a bullish bias in the greenback. ''Growth, inflation and the global backdrop are all still helping the dollar,'' Kit Juckes at Societe Generale explained in a note. Touching on the Omicron risks as well, he notes that the US dollar is a favourable safe-haven instrument in this regard as well. ''The first signs from China that further yuan strength will be resisted also helps the dollar as does concern about the Omicron variant.''
Omicron is becoming the dominant coronavirus variant in European nations, which could leave a spanner in the works for the swiss franc that is otherwise favoured for its safe-haven qualities. Switzerland has imposed further restrictions on public and private gatherings and has advised people to work from home.
Health Minister Alain Berset warned the Delta variant is still not under control while the country is now facing an outbreak of Omicron. “The situation is very serious,” said Berset. “We didn't want this, but we have to work with reality. Some hospitals have already reached their capacity limits."
Overall, the popular economist in the forex space explained,'' the dollar is increasingly seen by some investors as the best hedge against a risk shock, given that the bond market no longer performs this task adequately,'' Kit Juckes at Societe general explained.
All eyes on Super Thursday and the SNB
Meanwhile, the CHF net short positions edged lower last week. In the spot market, we also have seen the CHF edge higher at times of risk-off. However, there is always the risk of the Swiss National Bank intervening and investors are quick to take profits.
“Super Thursday” will be interesting where the SNB will kick things off at 8:30AM (GMT) with a rate announcement. However, the focus will mostly be on CHF-related comments. Traders will look to see if the SNB will stay with its familiar narrative that the franc is “highly valued”.
The jawboning effect could have a negative impact on the currency a the bank attempts to defy speculation that it is prepared to let it run higher to curb stagflationary risks. The EUR/CHF will be an important gauge in this respect with the cross coming under pressure again amid Omicron-related concerns. A less dovish European Central Bank will also be a risk that traders will need to gauge as to how this will impact the CHF.