USD/CHF Hurled Overboard, Swiss Franc, Gold Remain Supreme

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Turbulence remains in play, with Wall Street handing back around half of Wednesday’s gains, which marked one of their best days in years. The excitement of a tariff pause has passed, and traders are now mulling over the fact that a 10% tariff remains in place and a 125% one for China. So things are worse than they were at the beginning of the week, but not as bad as they looked on Tuesday. This has kept volatility elevated while gold and the Swiss franc flourish thanks to safe-haven flows.

For what it’s worth, US inflation came in much softer than expected. Core CPI slowed to the four-year low of 2.8% y/y, or the nine-month low of 0.1% m/m. CPI was just 2.4% y/y, and contracted for the first time since the pandemic at -0.1%. Usually this would have prompted a risk-on rally and spurred bets of Fed easing, but tariffs remain the far bigger force at play.

Still, odds of a 25bp Fed cut in June have now risen to 54% according to Fed fund futures, and that has weighed on the US dollar.

USD Index Remains Under Pressure

The US dollar was the weakest currency on Thursday as traders priced in potential Fed cuts and loss of growth exceptionalism amid tariff woes. The US dollar index fell -1.8% to mark its worst day since November 2022 and hit a fresh year-to-date low, and currently on track for its worst three-month run in over two years. 100 is likely the next major support level for the dollar, but for now it is trying to hold above the September high around 100.80.

• EUR/USD briefly hit its highest level since July 2023 before closing a few pips beneath the 1.12 handle and 2024 high. A breakout seems more likely than not at this stage, though it depends on how the US dollar index behaves around the 100 handle and 2024 low.
• USD/CNH was lower for a second day. China have not opted to go nuclear with a weaker onshore yuan (CNY), with renewed bets of Fed cuts sending the dollar broadly lower and USD/CNH back to 7.3.
• The weaker US dollar and yuan allowed AUD/USD to rally for a second day, close above the 62c handle and reach the upper 1-week implied volatility level outlined on Monday. The Australian dollar is now effectively flat for the month despite its 8% range being its most volatile since November 2022.
• The Swiss franc (CHF) was the strongest FX major and continues to be the ‘go-to’ currency in the current environment, outpacing the Japanese yen (JPY) and sending CHF/JPY up 2% to hit its highest level since December
• Traders have also revived their lust for gold despite a volatile, 3-day selloff from its record high last week, with the yellow metal closing less than $10 from its record high on Thursday

With the Swiss Franc Tumbling and USD/CHF plunging, will the SNB intervene?

Last year there were suspicions that the Swiss National Bank (SNB) were intervening in the currency market whenever USD/CHF fell below 0.84 or EUR/CHF fell beneath 0.92. While it seems that was not actually the case, the market did a good job of anticipating intervention around these levels to then do the work of the SNB for them – and the SNB were also making it clear that they were prepared to intervene if necessary.

• At the time of writing, EUR/CHF is just 23 pips above 0.92 whereas USD/CHF has cut through 0.84 like a knife through butter
• USD/CHF fell 4% on Thursday to clear the 2023 and 2024 low to mark its fourth worst day on record, and its eight most volatile day ever
• USD/CHF is now on track for its worst month in 15 years and sits at its lowest level since January 2015 (when the SNB removed the Swiss franc peg to the euro)
• Given the acceleration of the Swiss franc, it seems reasonable that the SNB will begin to become vocal about intervention, and that could prompt a sharp snapback higher on USD/CHF

Gold technical analysis

Gold has just gapped higher at the open and is very close to probing its all-time high set on April 3. It trades within an established bullish channel, and its upper trendline allows for further gains. Given gold’s rally has erased the losses of the prior three bearish days, I guess is that traders are more than happy to snap up dips if or when presented.

The 1-hour chart shows a strong trend which is accelerating away from its 10 and 20-bar EMAs. While we might see some sort of a shakeout around 3200 (given its significance), there are plenty of levels of potential support for gold bugs to consider, in anticipation of a move towards 3260.

-- Written by Matt Simpson

Follow Matt on Twitter @cLeverEdge