Last week was characteristically quiet and lackluster in global markets, with the US dollar edging slightly higher as traders tried to soak up the last of the late summer sun.
The dollar did manage to gain ground across the board, but only after Monday’s precipitous drop. In fact, volatility across the foreign exchange market (and other markets more broadly) was as high last week as it has been at any point since the Great Financial Crisis. Taking a step back to survey the damage, the US dollar has been one of the primary beneficiaries, though the dollar index still remains generally range-bound between 94.00 and 98.00.
Zooming in to a specific component of the dollar index, namely USD/CHF, reveals a more nuanced picture. After collapsing down to its 78.6% Fibonacci retracement at .9300 last Monday, the pair staged a sharp recovery rally back to the mid-.9600s as of writing. Not surprisingly, both the daily RSI and MACD indicators have shown signs of recovering along with the exchange rate itself: the RSI is back at a neutral level at 50 after a brief dalliance in oversold territory, while the MACD shows signs of turning higher to cross back above both the “0” level and its signal line, which would herald the return of bullish momentum.
In the short-term, there are two key levels to watch. The 61.8% Fibonacci retracement of the mid-August drop sits at .9655 and put a cap on USD/CHF late last week, whereas the 50-day MA at .9575 could provide near-term support. Given the recent surge and tight consolidation near the highs, an upside breakout appears more likely, with a close above .9660 potentially opening the door for a rally to 97.60 (the 78.6% retracement) or .9900 (the 5-month high). On the other hand, a break below 50-day MA support could expose .9500 or lower later this week.
This week’s data-packed economic calendar, including global PMI figures, US ADP employment, and of course, Friday’s marquee NFP report, will no doubt have a major influence on USD/CHF and all dollar-based pairs, so readers should keep a wary eye on their data feeds as we move through the week.