USDCHF Could Be Pointing to Further Dollar Declines

by on April 11, 2014 5:38 pm BST

The US Dollar index have been slaughtered over the last week and reached five-month lows.Price action is modestly up today, but the technical damage has been done and there has clearly been a sentiment change in what was seen as a safe-haven asset.

Traders were expecting clarification on the Federal Reserve’s interest rate policy and outlook, and the FOMC minutes provided absolutely nothing. On March 19, Fed chair Janet Yellen said that interest rates could have seen a bump up six months after the end of quantitative easing, expected by the end of this year. However, last Wednesday’s FOMC minutes, the Fed pulled away from the interest rate talk and was more dovish. As a result, the dollar sold off big.

The dollar could be in trouble because USDCHF looks to be pointing to more downside. The dollar/Swiss franc pair is highly correlated to the US dollar index with a very strong correlation of .92974 out of 1.0, and it is a suitable way to trade off one another.

The weekly chart is concerning for dollar bulls, and price action has been held under the downtrend line that was created almost a year ago.

On a five-year weekly chart with a Fibonnaci retracement overlay, price action has broke through the 61.8 percent level again. The pair has previously from support at .8710, but the feeling behind the current move is not one of comfort.  The current weekly candle has the largest price range in several weeks and almost eclipsed the last three weeks of positive movement. The current weekly support is the line in the sand for a pullback or a larger decline to .8560.

Unless sentiment shifts behind the dollar, and the Fed gets their act together (unlikely), USDCHF has a downside projection of .8335. However, if support can hold then USDCHF can pullback to Fib. resistance at .8825 before seeing price action resistance at .8865.

1W Chart of USDCHF

1W Chart of USDCHF