USD/CHF: Path higher hits roadblock as Bessent's nomination sends bonds bid

USD/CHF surges on SNB’s Schlegel hinting at negative rates
Bessent’s Treasury nomination sends US bond yields lower
Pair reverses half of Friday’s gains but stays in an uptrend
Key levels: .8900 support, .8960 resistance, RSI warns momentum fading

Overview

USD/CHF is back in the spotlight, with interest rate differentials driving the pair to fresh highs amid comments from SNB Chairman Schlegel that hinted at a readiness to revive negative interest rates if needed. This piece dives into the technical and fundamental landscape for USD/CHF, examining its close ties to yield spreads, key levels to watch, and the broader macro backdrop ahead of pivotal events in early December.

SNB says negative rates remain on table

USD/CHF was jolted higher on Friday as Swiss National Bank (SNB) Chairman Martin Schlegel made it clear he would be willing to adopt extreme monetary policy measures should the need arise, including negative interest rates.

"I want to emphasise that lower interest rates, plus negative interest rates are not excluded from our toolbox," Schlegel told an event in Zurich. "Nobody loves negative interest rates, the SNB does not love negative interest rates, but if it is necessary we are ready to take the next step."

The acknowledgment saw USD/CHF surge to 18-week-highs, with traders upping the implied probability of another jumbo 50bps cut from the SNB in December to around 30%. Unlike other developed market central banks, the SNB meets only once a quarter to deliberate monetary policy.

The reaction in USD/CHF to Schlegel’s comments was understandable considering how strong the correlation has been with interest rate differentials between the United States and Switzerland over the past month.

Rate differentials driving USD/CHF

Source: TradingView

The correlation coefficient score with five-year interest rate spreads has been 0.96, with two-year spreads only marginally weaker at 0.93. That’s incredibly strong, and more importantly significant. Where spreads have moved, USD/CHF has usually followed.

As covered in a separate note looking at USD/JPY released on the weekend, upcoming US economic data may not move the dial for US bonds this week, even though some are regarded as top-tier among traders. Without a major surprise from the core PCE deflator or second read of US Q3 GDP, the main data events arrive in early December with November payrolls and inflation.

Bessent nomination sends bonds bid

We may have already seen the largest move in bond markets this week with traders reacting positively to the nomination of Scott Bessent as US treasury secretary, with yields falling across the curve. Bessent was among the more market-friendly candidates of those names floating around, but whether the bid and bonds can be sustained beyond the short-term is debatable. The US economy is carrying a lot of momentum, questioning whether lower rates are required right now.

Watch for a potential part retracement of the initial reaction over the coming days, an outcome that would normally promote upside for USD/CHF.

USD/CHF lower but uptrend intact

Source: Trading View

USD/CHF has reversed about half of Friday’s move on Bessent’s nomination, although it remains comfortably in an uptrend dating back to early November.

Prior to Friday’s break, USD/CHF struggled above .8900 earlier this month, suggesting traders should watch this level carefully for clues on how to proceed near-term. Beneath .8900, uptrend support is located around .8865, with the 200-day moving average and .8800 the next levels after that. On the topside, .8960, .9000 and .9050 may offer resistance.

Momentum indicators are providing mixed signals, although divergence between price and RSI (14) warns that bullish momentum is waning, hinting directional risks may be skewing lower.

-- Written by David Scutt

Follow David on Twitter @scutty

How to trade with City Index

You can trade with City Index by following these four easy steps:

Open an account, or log in if you’re already a customer

• Open an account in the UK
• Open an account in Australia
• Open an account in Singapore
Search for the market you want to trade in our award-winning platform
Choose your position and size, and your stop and limit levels
Place the trade

From time to time, StoneX Financial Pty Ltd (“we”, “our”) website may contain links to other sites and/or resources provided by third parties. These links and/or resources are provided for your information only and we have no control over the contents of those materials, and in no way endorse their content. Any analysis, opinion, commentary or research-based material on our website is for information and educational purposes only and is not, in any circumstances, intended to be an offer, recommendation or solicitation to buy or sell. You should always seek independent advice as to your suitability to speculate in any related markets and your ability to assume the associated risks, if you are at all unsure. No representation or warranty is made, express or implied, that the materials on our website are complete or accurate. We are not under any obligation to update any such material.

As such, we (and/or our associated companies) will not be responsible or liable for any loss or damage incurred by you or any third party arising out of, or in connection with, any use of the information on our website (other than with regards to any duty or liability that we are unable to limit or exclude by law or under the applicable regulatory system) and any such liability is hereby expressly disclaimed.

City Index is a trading name of StoneX Financial Pty Ltd.

The material provided herein is general in nature and does not take into account your objectives, financial situation or needs.

While every care has been taken in preparing this material, we do not provide any representation or warranty (express or implied) with respect to its completeness or accuracy. This is not an invitation or an offer to invest nor is it a recommendation to buy or sell investments.

StoneX recommends you to seek independent financial and legal advice before making any financial investment decision. Trading CFDs and FX on margin carries a higher level of risk, and may not be suitable for all investors. The possibility exists that you could lose more than your initial investment further CFD investors do not own or have any rights to the underlying assets.

It is important you consider our Financial Services Guide and Product Disclosure Statement (PDS) available at www.cityindex.com/en-au/terms-and-policies/, before deciding to acquire or hold our products. As a part of our market risk management, we may take the opposite side of your trade. Our Target Market Determination (TMD) is also available at www.cityindex.com/en-au/terms-and-policies/.

StoneX Financial Pty Ltd, Suite 28.01, 264 George Street, Sydney, NSW 2000 (ACN 141 774 727, AFSL 345646) is the CFD issuer and our products are traded off exchange.