The Swiss franc has fallen to parity against the dollar, which has been rallying broadly but holding near the 1.20 floor rate against the euro, with the European currency reeling under strong downward pressures.
Charts show that the upward rally in USD/CHF is still within the trend downwards seen since 2005, meaning the immediate moves in the pair will be crucial.
With the early days of the new year showing continued dollar demand and a euro sell-off, the franc is likely to keep its diverging trends against its two most important counterparts.
If the likelihood of worsening deflation risks and a downbeat economic outlook for the Eurozone can keep the Swiss unit supported against the single currency, relatively more positive US numbers and safe haven demand will keep the dollar dominant.
The Swiss National Bank's decision last month to charge a fee for sight deposits of a particular amount and above has effectively brought Switzerland under negative interest rate regime, taking the safe haven shine of the franc away.
When all of this is considered, the Swiss currency is fundamentally weak, and only the relatively worse scenario in Eurozone keeps the franc upbeat versus the common currency.
The SVME purchasing managers index for December will be published on 5 January and then unemployment rate and inflation data on 9 January.
Swiss unemployment rate is at 3.1% and inflation has been mostly at -0.1% or zero through last year. Only in two months the year-on-year inflation rate came above the zero line and the market consensus for December is a repeat of the November print of -0.1%.
After falling below the parity mark in November 2010, USD/CHF made two attempts to break back higher, in July 2012 and in May 2013, but failed.
The success this month has taken it through the 2012 peak of 0.9973 to a more than two-year high.
A close look at the monthly chart reveals two trends: the upward trend that started in July 2011 and the big picture downtrend started in October 2005.
The recent upward one has hit channel resistance increasing the likelihood of a correction – then 0.9021 will be the level to target.
If the pair ignores the channel resistance and continue upward towards the second wave top, then it can hit 1.10 in a few weeks.
On the way north, the 1.04 level may offer some resistance, but a stronger resistance would still be higher – at 1.1286. Further up, 1.2133 is a level to watch.
On the downside, 0.9634 and 0.8700 are two major levels to watch. As long as the former holds, risks will be more skewed to the upside.
A fall through the latter will, however, resume the big picture downtrend opening doors to levels like 0.8000, 0.7000 and below.