Crude and dollar rebound as Trump says deal possible after the election

Crude oil, the US dollar and bond yields all bounced back from their lows, causing fresh pressure on foreign currencies, European indices and to a lesser degree precious metals. Earlier in the day, risk appetite had improved further with European indices turning higher as oil prices had extended their recent falls. But moments ago, Donald Trump’s speech at the UN seems to have poured cold waters on any hopes of a deal. He told Iran to reach an agreement or face the rapid “annihilation”, predicting that a deal would probably follow the US elections. In other words, the situation is unlikely to change materially for another month and a half at least. Barring any surprises in the US-Iran situation in the coming days, the US dollar could remain supported on any short-term dips, allowing pairs like the USD/CHF to thrive.

 

Dollar regains poise as oil rebounds

 

The US dollar came under a bit of pressure earlier today, but it has since turned higher following Trump’s speech. The greenback actually had a decent start to the week yesterday despite a decline in oil prices and positive risk sentiment. That held back the major pairs like the EUR/USD, while precious metals gave back a chunk of their gains from last week. Earlier today it had eased back a bit along with oil prices. Brent fell below $100 a barrel on the back of some headlines suggesting Iran is happy to re-open the strait of Hormuz within 7 days if the US accepts demands “such as lifting the US military blockade of Iranian ports”. This was reported by Japan’s Kyodo News. We have seen similar headlines in the past, some proven to be fake news, but triggering similar reactions, nonetheless. Kyodo did not specify whether “such as” includes all of the 7 demands. So, there was some hope, but uncertainty remains, especially after what Trump just said. In short, the rebounding oil prices at these still-elevated levels should keep inflation concerns alive and limit dollar’s downside.

 

 

Brent oil now needs to move back above the $98.65-$100.00 zone, which has been pivotal recently, to turn decisively bullish again.

 

If oil remains supported, pairs like USD/CHF should continue to find good support on the dips, thanks largely to growing expectations that the interest rate differential between the US and Switzerland would further expand.

 

USD/CHF pair to watch as dollar bullish case grows

 

Even when oil was falling in the last few days, the dollar was proving surprisingly resilient. Normally, a sharp decline in crude would ease inflation expectations and take some pressure off US rates, weighing on the dollar. This time, hawkish Fed rhetoric is getting in the way. We heard from Chicago Fed President Austan Goolsbee yesterday, warning that supply shocks, strong spending and AI-related investment could keep inflation sticky. Similar worries have also been highlighted by other hawkish Fed officials, arguing that the road back to 2% target may not be painless. This increases the risk of gradual tightening to be front-loaded, which could further widen the interest rate differential between the US and countries where inflation is subdued like Switzerland.

 

Key levels to watch on USD/CHF

 

 

The technical outlook on the USD/CHF pair remains bullish given the fact it has been making higher highs and higher lows, with the 200-day average pointing higher and price holding comfortably above it. There is also the rising trend line to provide yet further confirmation of the trend. In this environment, dip buying makes more sense than trying to catch the top. And the latest dip has been evidently bought today: price forming a small hammer at prior highs, now support, around 0.8200 area. If this is a genuine sign, we could see further upside continuation in the days ahead, initially target the liquidity now resting above the most recent high of 0.8264 where trapped traders would probably have their stops resting. Above that, round handles like 0.8300, 0.8400 and finally 0.8500 would come into focus next.