USD/CHF likely to drop further on US election results – MUFG

Analysts at MUFG Bank, see a potential trade idea in shorting USD/CHF considering the US dollar is likely to weaken further following the US election results. They point out the Swiss franc will continue to benefit from currency debasement fears. 

Key Quotes:

“USD/CHF is currently testing key support at the 0.9000-level where the lows from late August/early September are located. If those levels are broken, the USD sell-off could accelerate. There is little to no clear support levels for USD/CHF below the 0.9000-level apart from the lows following the CHF surge higher back in early 2015 when the SNB removed the 1.2000-floor for EUR/CHF. It could open the door to a move back towards the 0.8500-level for USD/CHF.”

“As we highlighted in our FX View piece, we believe that the increasingly likely election victory for Joe Biden supports our outlook for further USD weakness. It will reinforce pressure on the Fed to step up monetary easing to support the economic recovery especially now that Congress is likely to remain divided. The
CHF has been one of the main beneficiaries of the currency debasement trade alongside the price of gold.”

“The ECB are set to announce a further significant expansion (EUR500bn plus) of their own QE programme in December which boosts the relative appeal of the CHF against the EUR as well. The CHF is even strengthening against the USD and EUR as global equity markets rebound which we view as a bullish signal. The main risk to the trade idea that could dampen upside potential is that the SNB could step up intervention again.”