The U.S. dollar continues to find buyers on Tuesday, as traders are watching dips as potential value propositions. This carry trade setup is still a favorite of mine.
USD/CHF
The U.S. dollar has pulled back just a bit against the Swiss franc during trading on Tuesday as we continue to bounce around.
It is worth noting that interest rates in the United States did drift a bit to the downside, showing a little bit of hesitation, with the 0.83 level offering a certain amount of interest. That being the case, I think you have to understand that this is a market that, at least for me and many traders like me, is about the interest rate differential.
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The interest rate differential is still huge
The interest rate differential is still huge, and that is going to be an area where traders focus. If we dip a bit from here, then we have the opportunity to try to find some type of value.
The market breaking above the 0.84 level opens up the possibility of a much bigger move to the upside. We will have to wait and see how that plays out, but I look at this as a market that, over time, as long as the Swiss National Bank remains very loose with its monetary policy—and it has shown no proclivity to do anything different—the U.S. dollar should continue to grind higher.
After all, there are expectations for an interest rate hike in the month of December. We get CPI numbers coming out on Wednesday. That could change some of the expectations, but if they come out hot, this pair could be one that takes off to the upside. Just as if CPI numbers come in extraordinarily anemic, then maybe a little bit more of a pullback is in play.
Nonetheless, you can see that it has basically been straight up in the air since May. There have been a couple of consolidation zones and pullbacks, but this has been a nice long position that I have had. At this point in time, nothing has changed. I think we are going to try to get above 0.84, but we have got to get through the CPI numbers before that can actually happen.
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