USD/CHF’s reversal from 1.0065 highs extends below parity

• The dollar extends losses on Monday and returns below parity.
• The brighter market sentiment is weighing on the safe-haven USD.
• USD/CHF: Below 0.9876 downside pressure will increase – Credit Suisse.

The US dollar is giving away on Monday most of the ground gained last week. The pair has depreciated more than 1% from Friday's highs at 1.0065, to reach session lows below 1.0000 at the time of writing.

The greenback loses ground as risk appetite returns

News reports confirming that the UK Finance Minister, Jeremy Hunt, will reverse most of the mini-Budget tax cuts plan announced in September have boosted investors’ optimism on Monday.

Most of the world’s major stock indexes posted significant advances on Monday. In the US, the Dow Jones advances 1.81%, with the S&P Index 2,74% up and the Nasdaq rallying 3,5%, which has weighed on US Treasury bond yields, pulling the safe-haven USD lower across the board.

In the long run, however, the current risk rally is likely to be short-lived. The market is widely expecting the US Federal Reserve to hike rates by r 75 basis points again in November, while global economic prospects remain fragile on the back of geopolitical tensions, higher energy prices, and increasing COVID cases in China. This scenario is highly likely to strengthen the US dollar in the longer term.

USD/CHF: Breach of 0.9876 will increase downward pressure  – Credit Suisse

On the downside, FX analysts at Credit Suisse point out to a key support area at 0.9876: “USD/CHF’s surge was capped at the major resistance at the trendline from 2016 at 1.0075. This strong reversal lower paired with daily RSI holding a bearish divergence continues to strengthen the case for a near-term weakness (…) “Immediate support is seen at the recent low and the 13-day exponential average at 0.9929/13, though only a close below 0.9876 would raise more serious thoughts of the near-term risk shifting lower again.” 

Technical levels to watch