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

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