USD/CHF: No end in sight for the Swiss franc strength

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 Jan 4, 2021
  • The USD/CHF pair dropped to the lowest level since 2015 after the strong Swiss manufacturing PMI.
  • The Swiss manufacturing PMI increased to 58, the highest level since 2018.
  • The pair will next react to the Georgia Senate election.

The USD/CHF pair dropped to the lowest level since January 2015 ahead of the Georgia runoff election and after strong Switzerland manufacturing PMI. It is trading at 0.8788, which is 11% lower than last year’s high of 0.9897.

Swiss franc has been on a strong trend against the USD

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Switzerland manufacturing sector strengthens

Switzerland is widely-known for its robust manufacturing sector, with companies like Novartis, Nestle, and ABB having a substantial market share around the world. The country is also famous for its exports.

In a report earlier today, Procure and Credit Suisse said that the overall manufacturing PMI rose to 58.0 in December from 55.2 in the previous month. This reading was better than the median estimate of 54.0. It was also the highest it has been since 2018. 

This performance happened as demand for the country’s products continued to rise. Indeed, the indexes of capacity utilisation, supply delivery times, employment, and optimism by manufacturers continued to rise.  The manufacturing PMI was better than that of the European Union, which declined to 55.2 and the UK, which rose to 57.5. 

The stronger Swiss franc poses substantial risks to the Switzerland manufacturing sector. That’s because it makes its manufactured goods more expensive than those of its competitors. Indeed, the Swiss National Bank has lamented about the stronger franc in most of its recent rate decisions.

Georgia Senate election

Looking ahead, the USD/CHF pair will react to the upcoming Georgia election the US nonfarm payroll numbers. Tomorrow’s election is important because it will determine the leadership of the Senate. It will also determine the success of Joe Biden’s administration.

Analysts at most forex brokers predict that a Democrats win will be worse for the US dollar. That’s because the leaders are already committed to provide trillions of dollars in stimulus. They will also have the votes to repeal most of Trump’s policies, including tax cuts.

However, if Republicans win at least one seat, it will lead to gridlock, which will make it difficult for Biden to implement his agenda.

Later this week, the USD/CHF pair will react to the important services PMI and the US nonfarm payroll numbers.

USD/CHF technical outlook

USD/CHF
USD/CHF technical chart

The daily chart shows that the USD/CHF pair has been in a steep downward trend. It has moved below the 25-day and 50-day exponential moving averages. Also, the Relative Strength Index (RSI) has continued to drop. Therefore, the path of least resistance is lower, with the next key target being at 0.8750. However, there is also a possibility that the pair will reverse in the near term.

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