Another Way to Ride a Sliding Dollar

From the Desk of Ian Culley @IanCulley

It’s messy out there.

The CPI data came in a little warmer than expected today. And currency markets aren’t quite sure what to make of it.

Despite the overarching range-bound action and intraday indecision, I continue to find trade setups with well-defined risks.

Today, I’ll outline another vehicle to short a potential falling dollar – the Swiss franc.

I prepared to get long the USD/CHF pair last October. But the trade never materialized. Instead, it caught lower as the USD downtrend picked up steam in early November.

Fast-forward a few months, and I’m ready to short the USD/CHF pair.

Before we break down the setup, let’s zoom out:

The USD/CHF pair has remained in a structural downtrend since the 2000 dot-com bubble peak. We can interpret the past decade as a bearish consolidation within an ongoing downtrend. 

Some may see a potential head-and-shoulders top with the right shoulder nearing the neckline. Regardless, the implications point toward a downside resolution.

Remember, without a confirming breakdown, this is only an interpretation.

So what’s the level? Where are we right now?

Check it out:

Price has repeatedly tested a key Fibonacci retracement level at approximately 0.91. This provides a reasonable level to define our risk. 

But let’s take a closer look to nail down our levels:

I like selling the USD/CHF short on a break below the year-to-date low of 0.90605. That level acted as support in late 2021 and early 2022. 

If it’s below there, I’m short toward 0.8750. But I have no interest in taking a short position until a decisive downside resolution. It’s that simple.

Major USD pairs continue to form consolidations, implying further dollar weakness. And I want to ride the next leg lower.

Considering the structural downtrend and the well-defined risk level, the USD/CHF stands as one of my favorite vehicles to express a bearish dollar thesis.  

But the market continues to chop sideways as many of these bearish dollar trades have yet to trigger. 

If and when these trades do resolve in the direction of a falling US dollar, I imagine investors are not only getting paid to buy the Swiss franc but are also being rewarded for buying risk assets such as stocks and commodities.

Stay tuned!

Thanks for reading.

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