Yellen’s optimistic view of US economy boosts Greenback

The US dollar fell broadly against all the major currencies, including the Swiss Franc, in January. The Greenback was hammered because of two main reasons: Trump’s remark about the strength of the US dollar, and lack of details on infrastructure spending plans. The SNB (Swiss National Bank) was not much concerned about the strengthening of the Franc as the deflationary pressure has eased a bit in the past few weeks.

Furthermore, the US’ administration’s pressure on countries, which have large current account surplus, to permit their currencies to move freely without intervention also enabled the Franc to strengthen against the Greenback.

However, since January 31st , the USD/CHF pair is trending higher. The pair recorded a high of 1.008 on Wednesday. We anticipate the pair to move further northwards due to the reasons mentioned below.

Financial Times

On Tuesday, Janet Yellen gave an optimistic testimony to the Senate Banking Committee about the US economy. Yellen stated that it would be unwise to wait for too long to normalize rates considering the fact that the US economy is showing signs of strengthening. She further cautioned that there is a lot of uncertainty in the fiscal policy under Donald Trump’s regime. The market took the comment positively as it reflects the amount of freedom the Fed has in a vibrant democracy. Analysts consider the criticism to be Dollar positive.

Echoing Yellen’s comment, the Bureau of Labor Statistics reported a 0.6% m-o-m increase in the Producer Price Index (PPI) reading in January, from the 0.3% increase in the prior month, and above the market’s expectation of 0.3% growth. Excluding food and energy, the core PPI increased 0.4% m-o-m in January, against analysts’ expectation of 0.2% increase.

The Swiss National Bank (SNB), on the other hand, would be pleased to let the Franc weaken against the US dollar. The Franc has been the main target of investors seeking wealth protection in times of uncertainty. The SNB has stated several times in the past that the Franc is held high artificially because of its safe haven appeal. The strong Franc affects the country’s exports and economic recovery. Thus, SNB continues to adopt all measures, including negative interest rates and intervention, to keep the Franc weak.

So, on the basis of the above arguments, we forecast the Greenback to rise further against the Franc.

After nearly one month, the USD/CHF pair has once again crossed above the 12-day moving average. The Williams %R indicates an increase in momentum. This indicates the possibility of a short-term uptrend in the USD/CHF pair. The pair has a strong support near 0.9980.

Currency traders can open a long trade near the current level of 1.005 to speculate on the forecasted uptrend of the USD/CHF pair. To limit losses related to speculation, a stop loss order can be placed below 0.9860. The long position can be sold for profit near 1.0240.

Investing in a call option contract would enable a binary trader to gain from the rise of the USD/CHF pair. Ideally, an investment should be made when the pair trades near 0.9980. The trader should also make sure that the contract remains valid until February 24th .