USD/CHF better bid despite escalating trade war
During the Asian session, the US dollar lost some ground against the Swissie with USD/CHF easing to 0.9576, down from yesterday high of 0.9597. However, it looks more like a consolidation, reflecting investors’ caution in uncertain investment condition, namely the escalating trade war between China and the USA. Nevertheless, the situation didn’t prevent traders to build long USD/CHF positions as the currency pair increased more than 4.40% since mid-February, rising from 0.9188 to 0.9597.
The pair is on the cusp of testing the 200dma resistance level that currently stands at 0.9658. Given the positive development in the option market, together with the increase in short CHF positioning, there is a good chance that resistance would be broken to the upside. The 25-delta risk reversal measure has been continuously improving across all maturities since mid-February. The 1-month gauge rose from -1.18% to -0.62% yesterday, while the 6-month one jumped from -1.36% to -1.03%. The latest CFTC speculative positioning data puts CHF net short positioning at 21% (of open interest), compared to 10% the previous week.
Finally, the escalating tensions between China and the USA did not triggered a rush towards safe haven assets, which suggests that investors are confident that the world largest economic would be able to bear the economic choc. USD/CHF is currently trading at 0.9588 and the momentum firmly positive.
Germans bought less in February
Yesterday’s February retail sales disappointed, coming in negative at -0.70% instead of an expected slight gain. Private consumption has declined for three months in a row, and this is the key contributor to economic growth. Nonetheless, consumer confidence is firm, unemployment is at historic lows (5.30%) and wage growth accelerated 4.3% in Q4 2017. So we remain confident that private consumption will recover and that retail sales data must be taken with a grain of salt.
The euro continues to appreciate against the USD, currently at 1.2265 and expected to head toward 1.2254 short-term. There’s been an increase of US non-commercial long EUR futures, equivalent to 141’064 or 60% of total long open interest contracts, so expect to see continued pressure on the greenback.
