The Swiss Franc depreciated against the US dollar during the start of 2024

Highlights:

• At the beginning of the new year, the Swiss Franc began to weaken against the

US Dollar due to the recovery of the latter and the increase in Treasury yields. 

• This move may be a signal from bond traders that they anticipate a more persistent inflation outlook than previously expected.

On Tuesday, at the start of the new year, the Swiss Franc (CHF) weakened against the strengthening US Dollar (USD). This is mainly due to higher US Treasury yields. At the time of writing, the 5, 10 and 30-year maturity Bond yields were all up by over 2%. The advances suggest that bond holders do not share the widely held view that interest rates are likely to fall as sharply as some expect in 2024. Higher interest rates attract greater inflows of foreign capital, resulting in a stronger Dollar.  

Negative press surrounding the Swiss Franc on Tuesday may be reducing demand for CHF. This follows the news that BNP Paribas will compensate mortgage holders to whom it sold Swiss Franc loans prior to the 2015 devaluation, when CHF dropped its peg with the Euro.

The Swiss Franc weakened against the US Dollar as US Treasuries rebounded after a sustained decline towards the end of 2023.  

he Dollar’s recovery suggests that bond holders may not share the widely held view that US inflation is decreasing as quickly as some market participants expect. 

The market expects the Federal Reserve (Fed) to make its first interest rate cut at the March meeting. However, if US data is strong, expectations could be pushed back, which would be positive for USD. 

Negative press about the Swiss Franc may be affecting CHF due to BNP Paribas compensating mortgage holders in France who took out Swiss Franc loans before the Euro’s 2015 devaluation. 

According to Reuters, the bank was accused of mis-selling mortgages that were denominated in Swiss Francs but had to be repaid in Euros after the Euro lost its peg against the Franc in 2015, resulting in significant devaluation. This left customers with outsized repayments.

The USD/CHF pair has fallen below the key chart line at the July 2023 lows of 0.8552, and there is little significant support below.

On the weekly chart, the Relative Strength Index (RSI) shows slight bullish convergence at the December 2023 lows, compared to the July 2023 lows. This suggests that the current downtrend may be losing momentum. The convergence occurs because, despite the price falling to a new low in December, the RSI did not follow suit when compared with July. 

During the last week of December, the RSI fell below 30, indicating oversold conditions. If it remains oversold, short-traders should avoid adding to their positions. If there is a recovery this week and the RSI rises above 30, it will signal closing short positions and buying longs.

This suggests a potential correction higher in the future. However, the dominant trend remains bearish, indicating a bias towards lower prices. 

A break below the low of 0.8335 from last week would confirm the downtrend and result in further weakness, likely reaching 0.8300 and potentially other round-number levels.