USD/CHF Forecast: Freefalls as US Treasury Liquidity Operation Rattles Markets

The US dollar has fallen hard against most currencies on Wednesday, and the Swiss franc isn’t an exception. With the US Treasury issuing more debt on the long end of the curve, the market sees this as a sign of trouble.

USD/CHF

The US dollar has cratered against the Swiss franc during the trading session as traders continue to look at the carry trade. But this time, we are looking at it through the eyes of increased liquidity coming out of the United States. It looks like the US Treasury Department is going to issue more debt on the long end of the curve for at least a month in a special operation to increase liquidity.

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Generally speaking, that means a lower US dollar, and one of the big winners for the day is the Swiss franc. That would not be the first place people would think initially, but it's worth noting that there could be some rattled nerves out there. After all, it is possible that the Treasury Department and the Federal Reserve see something that worries them. And if that's the case, the Swiss franc then becomes a somewhat natural place for people to park money.

Carry Trade Unwind and Haven Inflows

It looks like the carry trade, at least involving the dollar, is trying to unwind. We've seen big moves against the yen as well, so that's worth watching. But ultimately, this is a market that it looks like it is a bit spooked. And with that being the case, it is important that traders remain somewhat cautious in this type of environment.

EURUSD Chart by TradingView

After all, if the market really gets out of control, you could see very erratic moves. The size of the candle, of course, is rather impressive, and we'll have to see how it closes. But right now, it most certainly looks like a market that is screaming to the downside and is trying to determine whether or not there's a floor anytime soon. This is not a falling knife I plan on catching, and I have exited all positions.

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