USD/CHF Reverses as Swiss Franc Surges amid Bond Carnage

The Swiss franc surged against every FX major on Thursday as bond markets came under renewed pressure and volatility spiked. With USD/CHF reversing from upper channel resistance, broad CHF strength and signs of a carry-trade unwind could now favour a deeper pullback.

Swiss Franc Surges as USD/CHF Reverses from Channel Resistance

Global bond markets took another beating on Thursday, with sovereign yields surging to multi-decade highs as investors grappled with persistent inflation, rising energy prices and the prospect of interest rates remaining higher for longer.

US Treasuries were at the centre of Thursday’s turmoil, with yields surging across the curve and the 20- and 30-year pushing above 5.6%, while a sharp rebound in spreads pointed to renewed curve steepening. The MOVE index jumped above 108 as bond volatility spiked, yet the US dollar also strengthened as DXY broke above 101.5. Which appears to be more like a violent repricing of rates than a conventional risk-off move.

The reaction across traditional safe-havens was also far from uniform. Gold was relatively subdued and the Japanese yen weakened against the US dollar, while the Swiss franc surged against every FX major.

Swiss Franc Strength Broadens Across FX Majors

That divergence makes the franc’s move particularly interesting, with the rally appearing to reflect an unwind of CHF-funded carry trades as volatility picked up and traders reduced risk, rather than purely safe-haven demand.

The fact that Swiss franc strength was broad-based on Thursday also strengthens the case for a pullback in USD/CHF. In particular, the franc surged 1.3% against the euro and 1% against both the British pound and New Zealand dollar. It even rose 0.85% against its fellow safe-haven, the Japanese yen.

Looking across the FX majors, several CHF crosses are also forming double bottoms or higher lows on the daily chart, which could point to a broader period of Swiss franc strength.

Source: ICE, TradingView

USD/CHF Technical Analysis: US Dollar vs Swiss Franc

The anticipated rally I flagged last week from the July high area has worked out well. Price action on USD/CHF has been more akin to a stock market than a currency market of late, though with prices respecting the upper channel line with a bearish engulfing candle and overbought RSI, perhaps it is time for a pullback.

Also note that USD/CHF is on track for a weekly shooting star if it were to close around current levels, though we do have a full day’s trade and an NFP report to get through. Yet the weekly RSI (14) is not overbought and continues to confirm the trend higher. USD/CHF may therefore remain favoured by dip buyers, assuming a pullback materialises.

Note that the monthly pivot point around 0.8250 sits near the 16 September high, making it a potential support area for bulls or target for bears.

Source: ICE, TradingView