USD/CHF 2021 outlook: Is a bullish reversal in play?

By: Crispus Nyaga
Crispus Nyaga
Crispus is an active trader, where he is followed and copied at Capital.com. He lives in Nairobi with his… read more.
on Dec 29, 2020
  • The USD/CHF pair dropped by more than 8% in 2020.
  • This drop was mostly because of a weaker US dollar and the actions of the Fed.
  • A bullish reversal is possible as the risk-on sentiment returns

The USD/CHF pair dropped by more than 8.60% in 2020 as the world dealt with the first global pandemic in decades. It reached a low of 0.8800, which was its lowest level since January 2015.

USD/CHF YTD performance

Dollar weakness

The USD/CHF price dropped mostly due to the overall weaker US dollar as the overall risk-off sentiment dominated the market. In total, the dollar index dropped by more than 8% in 2020, making it its worst year in more than a decade. In fact, the dollar dropped against all major and minor currencies, including the euro, sterling, South African rand, and the Norwegian krona.

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After initially spiking, the dollar lost momentum in late March after the Federal Reserve started its Covid-19 response. The bank slashed interest rates to the current range of between 0% and 0.25%. It then announced a new open-ended quantitative easing program, in which it expanded its balance sheet to more than $6 trillion. 

At the same time, congress responded to the pandemic by passing several trillion-dollar stimulus packages. In the final one, congress passed a $900 billion bill that provided $600 checks to individuals. 

The USD/CHF pair also dropped because of the actions by the Swiss National Bank (SNB). In its response to the pandemic, the bank failed to slash interest rates, which were already in the negative zone. Instead, the bank provided several important market intervention policies that saw it step-up its interventions, as shown below. 

USD/CHF 2021 outlook

In 2021, the Fed and the SNB will probably maintain the current monetary policies. The Fed has already hinted that it will leave rates unchanged even after the overall inflation rate moves above 2%. This means that the bank will not hike rates in 2021. Similarly, with Switzerland’s inflation rate below zero, the bank will possibly not increase rates. 

Therefore, the key mover for the pair will be the market sentiment. In my view, the sentiment will shift from risk-on to risk-off as the world embraces new risks. The primary risk will be on global debt, which spiked in 2020. Also, there will be further potential conflicts, particularly on the US relationship with China.

USDCHF technical outlook

USD/CHF
USD/CHF technical chart

Looking at the daily chart, we see that the USD/CHF pair has been on a steep downward trend. It remains below the 50-day moving average. Notably, oscillators like the Relative Strength Index (RSI) and Stochastic Oscillator have also moved above the oversold levels. 

Therefore, in 2021, there’s a possibility that the price will bounce back in 2021. If this happens, the next resistance will be at 0.9300, which was the highest point in September. You can take advantage of this prediction with one of these high leverage forex brokers.

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