The US dollar rose against the Swiss franc yesterday after news reports indicated that “phase one” of the Sino-American deal is nearing finalization. As optimism returned to markets, traders have started unwinding long positions in safe-haven currencies such as the franc. The greenback’s uptrend was also aided by a lower-than-anticipated trade deficit and a decline in preliminary wholesale inventories in September. From a low of 0.9932, the USD/CHF pair rose to a high of 0.9969 in the past 24 hours.
US President Donald Trump and Chinese President Xi Jinping are expected to ink a preliminary trade deal on the sidelines of the Asia-Pacific Economic Cooperation to be held in Chile on November 16-17. The salient features of the agreement are as follows:
- The agreement will temporarily suspend import duty hikes on roughly $520 billion worth of Chinese goods by the US government. However, the existing tariffs will remain unchanged.
- China commits to further tighten the screws on Chinese enterprises, which violate intellectual property rights.
- Being a member of the G20 stipulates the US and China to avoid currency manipulations for economic advantage. The preliminary trade deal will further restrain China from involving in currency manipulation practices. Hopefully, the US may remove the “currency manipulator” label affixed on China in August.
- China will also increase its import of soybeans and pork while offering more farm concessions. In fact, Beijing has already started importing US pork in huge quantities following an epidemic resulting in the death of thousands of pigs in China, leading to a surge in the price of pork.
- Commitment from China to purchase additional US manufactured commercial aircraft and natural gas.
- China has also agreed to establish a dispute resolution system. However, the US may not be totally satisfied with this move as it wanted a meticulous enforcement process to ensure that China abides by its guarantees.
- Reaffirmation of relaxation in the limit on stakes that can be held by the US companies in Chinese financial service providers.
The US Census Bureau has stated that the good trade deficit contracted to $70.40 billion in September, a decrease of $2.70 billion from $73.10 billion in August. Economists had anticipated the goods trade deficit to widen to $73.50 billion. While exports dropped $2.20 billion m-o-m to $135.90 billion in September, imports declined $4.90 billion m-o-m to $206.30 billion in the same period.
The Census Bureau also stated that preliminary wholesale inventories 0.3% m-o-m in September. In August, wholesale inventories rose by 0.2%. Economists had anticipated wholesale inventories to increase by 0.3%. Wholesale inventories stood at $677.40 billion in September.
However, retail inventories rose 0.3% m-o-m to $667.10 billion in September. On an annual basis (compared with September 2018), retail inventories increased 3.9%.
The optimism about the US-China preliminary trade agreement, contraction of trade deficit, and drop in preliminary wholesale inventories are expected to keep the US dollar bullish against the Swiss franc in the week ahead.
Technically, the USD/CHF pair is receiving strong support from its 50-day moving average. Additionally, the stochastic oscillator is in the bullish region. The next resistance is anticipated only near 1.0100. As a result, we can expect the currency pair to move up in the short-term.
Disclaimer: Any financial trading analysis offered here is our opinion and is not intended as advice or direction for investors. We cannot guarantee the success of any trades made as a consequence of this article, and we encourage traders to incorporate a strong money management strategy to limit losses when they enter the markets. Please use this article as part of your own research before formulating strategies prior to trading.
