USDCHF has reached our designated area for long entries this week, around the 0.9050 level. The price also bounced in this area as a first sign that a bottom is starting to form. 

Above all, the conditions for USDCHF to move up toward 0.95, and potentially even higher, remain in place. We discussed more about this in our detailed trade setup sent in June. 

Hence, triggering the long entry around current USDCHF levels is appropriate. This trade would likely work well, especially if tomorrow’s Nonfarm Payrolls report beats the estimates (over 1 million jobs should nicely boost the USD broadly). 

Nonetheless, even in case NFP misses estimates, the support in USDCHF should hold and eventually, the pair should move higher over the coming weeks and months. The uptrend here would be driven by Fed tapering plans that are ahead of other central banks, especially the SNB (Swiss National Bank). 

In case the NFP numbers tomorrow fall short of expectations, it would likely cause a USD sell-off. But that may well turn out to be a great opportunity to enter long USDCHF or add to already existing long positions.

Below, we take a look at the USDCHF technicals and the trade plan for specific entry, stop loss, and target levels.

Entry: 

• Around 0.9050, or near current levels (our entry is at 0.9050)

Stop: 

• The 0.8930 lows from May and June should hold off in any potential sell-offs triggered by a weak NFP; hence the stop should be placed slightly below these lows.

Targets:

• 1st: 0.9250 area at prior highs (take partial profits here)
• 2nd: 0.9450-0.95
• Longer-term target: potential to reach 0.98

As noted above, we are looking for the USD to eventually move higher in the coming weeks. But the NFP report tomorrow is the big risk event that could indeed turn either way. In fact, in most of the NFP releases this year, the USD fell following the release, even in instances when the numbers were better than the expectations. Another miss will no doubt trigger a USD correction lower, especially with the recent hawkish repricing.

However, the outlook for the US economy remains positive, and economists are expecting that sooner or later, job growth will accelerate and the unemployment rate will fall in the coming months. And one NFP report won’t change this outlook, which is why any declines in USD as a result of weak NFP numbers may be short-lived.

In the other case, if NFP comes in very strong (above 1 million maybe), coupled with a bigger than expected fall in the unemployment rate (5.7% are consensus estimates), then the USD will soar and could potentially break key technical zones on most major currency pairs. 

• In this scenario, EURUSD would likely break the neckline support and then trigger the head and shoulders pattern (this was extensively discussed in our weekly analysis posts). 
• Versus other currencies, USDJPY may breakout above 110.50, and our USDCHF trade should quickly move above 0.91. GBPUSD, AUDUSD, and NZDUSD will likely suffer less from USD strength but would nonetheless move lower in this scenario too. The Canadian dollar (CAD) faces a big day tomorrow too as Canadian jobs data will also be released at the same time as US Nonfarm Payrolls. Thus, we may see the highest uncertainly and volatility on the USDCAD pair tomorrow.
• Gold and silver are also sitting at key technical junctures and would likely break lower in a strong NFP scenario.

So, based on the above, the biggest potential for USD gains on a strong NFP tomorrow seem to be skewed against low-yielding currencies, such as CHF, EUR, and JPY. Of those, the technicals point to CHF as the most optimal pick to sell against USD, hence our trade idea above.

Quick note on the long EURCHF trade issued a few weeks ago:

The support at 1.0800 in EURCHF did not hold and the long position was stopped out. Nonetheless, the longer-term outlook for EURCHF remains bullish, and the pair should eventually turn higher, albeit it may take a while for that to transpire, especially now that the important 1.08 support is broken.

• Long USDCHF from 0.9050, as discussed above (trade idea sent on June 18)
• Short USDCAD from 1.2440, stopped out at 1.2530 = -90 pips
• July 9, 2021 - Long EURCHF from 1.0850, stopped out at 1.0800 = -50 pips
• Short AUDNZD – retracement up didn’t occur so this setup is now considered canceled (trade idea sent on July 15)