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USD/CHF bulls taking a break at critical retracement territory

USD/CHF is taking a rest bite from the relentless downside run from the mid 0.93 handle, consolidating at weekly lows and a critical support area. 

At the time of writing, the pair is trading at 0.9203 within a range of between 0.9166 and 0.9230.

The start of the week has followed on from a busy close where a change in tides in the G10 market has seen consistent losses in the US dollar. 

Speculators grew more bearish about the US dollar, increasing their short positions in the currency, according to calculations by Reuters and US Commodity Futures Trading Commission data released on Friday.

US dollar positioning was derived from net contracts of International Monetary Market speculators in the Japanese yen, euro, British pound and Swiss franc, as well as the Canadian and Australian dollars.

Consequently, Friday marked the fourth consecutive week in which the dollar index DXY has fallen as the dollar loses its afe-haven appeal.

The Federal Reserve's intervention into financial markets in the United States has propped up risk assets, tamping down demand for safe-havens which is where we have seen a continuation in the recovery on Wall Street. 

EUR longs blast high

Despite a pickup in coronavirus infections this week, the DXY is expected to continue to fall,  pressured by a stronger EUR/USD.

The sell-off in the USD appears to have underpinned the safe-haven CHF.

The euro is supported last week by news on the EU’s Recovery Fund. Net longs have now reached their highest level since April 2018.

Meanwhile, concerns about a second wave of Covid-19 in addition to China-related tensions will likely see flows continue to support safe-haven currencies, such as the yen and CHF.

Given that the safe-haven CHF can be sensitive to political uncertainty within the Eurozone, the recent cohesion between EU leaders serves to support a more bullish outlook for the currency. 

USD/CHF levels

In the above chart, the price has reached a critical support zone leaving a bullish doji with an upside retracement target to the 61.8% Fibonacci. 

 

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