Greenback Weakens on US Election Uncertainty

Greenback Weakens on US Election Uncertainty
November 9, 2016

In spite of the near assurance of a Fed rate hike in December, the US dollar continues to remain weak for the past one week. This is particularly true in the case of USDCHF pair, which has fallen by nearly 200 pips to 0.9760. There are market participants who argue that this is simply a minor correction considering the Greenback’s rally in the past month. However, the political developments in the US, Fed’s statement, and the market’s perception of the Swiss Franc as a safe haven currency has increased the chances of further decline in the USDCHF pair as explained below.

Last week, the Fed held the interest rates steady and avoided tightening the monetary policy. However, the Fed stated that the arguments in favor of a rate hike are strengthening. While there is no denial that the probability of a rate hike has increased to 76% in the recent weeks, still, the investors are shying away from increasing their investments in the Greenback. The first major reason is the US election uncertainty. A recent survey reflects only a slim lead for Hillary. This uncertainty has kept the investors in dilemma. Secondly, the rally that we saw last month has created a feeling that the impact of the rate hike is already priced in and the market is now looking for hints about the number of rate hikes in 2017.

Finally, the Federal Reserve did not give a firm statement either way. Instead, they simply left open the door of possibilities. Many analysts believe that in the unlikely event of a market crash following the declaration of US election results, the Fed will postpone the rate hike.

In the meanwhile, the investors continue to look at the Swiss Franc for hedging the US election risk. It can be remembered that the Swiss Franc made the maximum gains from the shocking outcome of the Brexit referendum. It is almost a similar kind of situation. So, based on the above arguments, we anticipate the USDCHF pair to decline further in the near-term future.

The USDCHF pair failed to hold above the 0.9860 level due to the uncertainty in the US political situation. The MACD indicator has fallen into the negative zone, while the currency pair has made a bearish crossover below the 50-day moving average. Thus, we expect the USDCHF pair to remain bearish in the short-term.

USDCHF - Technical Analysis - 9th November 2016

So, going short in the USDCHF pair would be a smart decision as of now. The short position can be taken near 0.9800. To limit losses from the short position in the currency pair, a stop loss order can be placed above 0.9850. The short position can be winded near 0.9580.

A binary trader can consider investing in a one touch put option to benefit from the probable downtrend of the USDCHF pair. The strike level for the put option should be greater than 0.9660. Selecting an expiry date in the second week of December would greatly improve the chances of success in the trade.



Sammy is our forex expert, with over 20 years experience in the financial sector, she will be keeping you up to date with the ups and downs of currencies around the world

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