USD/CHF bounces off multi-month lows amid stronger USD, risk-off mood capping gains
- A goodish pickup in the USD demand assisted USD/CHF to gain some positive traction.
- A turnaround in the risk sentiment benefited the safe-haven CHF and capped the upside.
- The focus remains on developments surrounding the US stimulus and US-China relations.
The USD/CHF pair quickly recovered around 40 pips from the early European session dip to over four-month lows and refreshed daily tops, around mid-0.9300s in the last hour.
The pair managed to find some support ahead of the 0.9300 round-figure mark and for now, seems to have stalled its recent bearish trajectory amid a goodish pickup in the US dollar demand. Against the backdrop of the ever-increasing COVID-19 cases, concerns about worsening US-China relations benefitted the greenback's status as the global reserve currency. This, in turn, was seen as one of the key factors behind the USD/CHF pair's modest uptick witnessed over the past hour or so.
Diplomatic tensions between the world's two largest economies escalated further after the United States asked China to close its consulate in Houston in order to protect American intellectual property. The US State Department Spokesperson Ortagus said on Wednesday that the US will not tolerate any violation of its sovereignty. China’s foreign ministry strongly condemned the move and threatened retaliation, sparking fears that the latest dispute could halt the US-China trade deal.
The developments took its toll on the global risk sentiment and the same was evident from a sharp turnaround in the equity markets. The risk-off mood underpinned the Swiss franc's perceived safe-haven and kept a lid on any strong recovery for the USD/CHF pair. This makes it prudent to wait for some strong follow-through buying before confirming that the pair might have bottomed out and positioning for any further gains amid the impasse over the next round of US economic stimulus measures.
It is worth reporting that policymakers have been struggling to reach consensus on a $3 trillion relief bill. The said bill was passed by the Democrat-majority House of Representatives two months ago but has been ignored by the Republican-majority Senate. Hence, the key focus will remain on developments surrounding the US stimulus package and US-China relations.
Technical levels to watch