USD/CHF and DXY diverge

If one is looking for a proxy to trade the DXY, USD/CHF is probably not the best choice right now.


The DXY and USD/CHF have been trading together for most of 2021.  The correlation coefficient has been above 0.90 for over a month.  A correlation coefficient of +1.00 means that the 2 assets move together 100% of the time.  Many fx traders who may not have access to the DXY have been using USD/CHF as a proxy.  If one thought DXY was heading higher, he our she would buy USD/CHF instead because the correlation was so high.

However, the correlation coefficient today is only 0.46!  Although it is still positive, it is far from a strong correlation. As a matter of fact, the correlation is at its lowest level of the year to date. 

Source: Tradingview, City Index

USD/CHF broke out of a descending wedge today on a daily timeframe, up over 1%, while the DXY is near unchanged. The first resistance level is the 200 Day Moving Average, which crosses at 0.9150.  Above there is at the 38.2% Fibonacci retracement from the March 23rd highs to the January 6th lows at 0.9200.   Next is a horizontal resistance area between the September 28th highs of 0.9295 and the 50% retracement level of the previously mentioned timeframe near 0.9333.  Horizontal support is back at the breakout level near 0.8990, then horizontal support at 0.8925. 

However, USD/CHF isn’t the only Swiss pair breaking higher today!  EUR/CHF is also breaking higher.  The pair has been moving in an upward sloping triangle pattern and broke out today above 1.0915, moving straight up to near 1.1000!  A resistance zone is above between 1.1059 and the 38.2% Fibonacci retracement level from the April 2018 highs to the Many 2020 lows, near 1.1084.  Support is back at the breakout point near 1.0915.

Source: Tradingview, City Index

It’s also worth noting that GBP/CHF is up 1.45%, AUD/CHF is up 1%, and CHF/JPY is down 0.83% . 

The Swiss Franc has been every weak today, and it appears that there may still be room to run.  However, if one is looking for a proxy to trade the DXY, USD/CHF is probably not the best choice right now.  (As an alternative, EUR/USD has a correlation of -0.96 to DXY.  One can sell EUR/USD as proxy for buying DXY).

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