The Swiss franc continues to depreciate against the US dollar, heading towards its biggest monthly decline in almost 10 years.
Since Monday, USD/CHF has gained 1.25% after testing a new high of 0.9701 on Wednesday. This is the highest value in almost 2 years.
In yesterday's trade, the US dollar strengthened against the franc by about 80 points, or 0.75%. Today, it continues its upward momentum, trying to reach new peaks.
Yet, the technical picture is not as optimistic as it may seem. USD/CHF's sharp uptrend developed throughout April may end with consolidation in the short term.This is confirmed by the Relative Strength Index which has approached the overbought zone.
Nevertheless, the US dollar still has strong upside potential. Demand for safe-haven assets is increasing as the sentiment in the stock market is getting worse.
Investors fear that China will tighten lockdown measures due to a new wave of COVID-19. New restrictions could disrupt supply chains, thus negatively impacting global economic growth.
Risk aversion in favor of the US dollar is caused by the escalation of the Russian-Ukrainian conflict. The geopolitical situation worsened after Gazprom stopped exporting natural gas to Poland and Bulgaria.
Also, the rise in long-term government bonds supports the greenback. The 10-year US Treasury yield is about to reverse the downtrend that has been in place for over 40 years. A firm settlement above 3% will be a turning point for the indicator.
The current trajectory of Treasury yields is very similar to the one of USD/CHF. Apparently, this currency pair is poised to change the long-term trend as well.Since the 1970s, the Swiss franc has regularly posted yearly gains against the greenback. On average, it showed a 3% advance per year.
Thus, for 50 years, buying the franc for dollars has allowed investors to almost completely cover the loss in the purchasing power of the greenback, with an average inflation rate of 3.9%.
Testing the level of 1.02 will confirm the repositioning of forces in favor of the US dollar.
