USD/CHF Signal: US Dollar Defends 200-Day EMA As Carry Trade Resumes

Potential signal:

• I am buying here.

• I will put a stop loss at 0.7950 and aim for the 0.82 level.

• The US Dollar initially gapped higher against the Swiss Franc to kick off the trading session here on Monday, as we see the carry trade coming back into play at the moment.

USD/CHF

The US Dollar initially gapped higher against the Swiss Franc to kick off the trading session here on Monday, defending the 200-day EMA and looking like a market that is still trying to find the upside after we had seen a significant sell-off last week.

Quite frankly, I believe that the story here is probably going to be one where traders are looking at the scenario with the US Dollar with a little bit different eyes during the morning as the overreaction to the extension of the buybacks of the 30-year Treasury may start to attract value hunters. After all, doubling the buyback is a big deal, except it simply normalizes it along with the rest of the yield curve.

So overall, this is a situation where the carry trade could become interesting, and traders may continue to flock to it, but we'll just have to wait and see if the momentum picks back up. However, you get paid to be patient with the upside, and that’s something to keep in the back of your mind.

Technical Outlook

The 0.7950 level is an interesting area for support, as it was not only a large round, psychologically significant level that we had tested, but it's also the 61.8% Fibonacci retracement level of that most recent surge higher.

So, with all of that being said, ultimately it looks a lot like a market that is trying to get back to what it had been doing before, and that was honoring the carry trade. You get paid at the end of every day to hold this USD/CHF pair, and I think this pullback has ended up being a nice buying opportunity.