Risk Aversion Sends USDCHF to New Historical Lows

USD is little changed and trading near Fridays closelevels. The exception is USDCHF that continues to melt down. US debt ceiling stalemate to keepUSD under pressure. Dallas Fed Manufacturing Activity is next.

USD is likely to stay under pressure as market focus turnedfrom the Eurozone periphery debt problem to the US debt ceiling stalemate. Riskaversion that would under normal circumstances support the greenback,underpinned JPY and sent CHF soaring. USDCHF made new historical lows at 0.8020while EURCHF traded down to 1.1530 which is more than 200 points below Fridaysclose.

We can often see markets find a resistance/support at big,round numbers such as 0.8 in USDCHF. Trying to pick bottoms is similar to theproverbial catching of the falling knife but option related buying combinedwith the psychological aspect of round numbers could provide short termsupport.

Over the past two weeks BOJ officials started again to issuestatements regarding JPY strength. Yesterday was not an exception as BOJgovernor stated that JPY rise poses risk to the Japanese economy. Given themassive loss that SNB is keeping on their books after failed interventions near1.50 in EURCHF, BOJ is likely to think twice before devoting a significantcapital to interventions.

On the data front, ItalianConsumer Confidence in July fell to 103.7 from 105.8 in June and UK BBA MortgageApprovals for home purchase increased slightly to 31.7K in June from 30.8K inMay. Despite this increase, year over year data shows a 6% decrease.

There is only one fundamental data release due during the New York session today.At 10:30 am ET DallasFed Manufacturing Activity for July is expected to print -7.2 after dropping to-17.5 a month earlier. Even though this indicator usually does not have muchlasting impact, it confirms the manufacturing slowdown that is taking place notonly in the USbut in most countries around the world.