USD/CHF TALKING POINTS
- Overview of Swiss National Bank interest rates
- US inflation and upcoming Fed decision
- IG Client Sentiment: Bullish
BASIC CONTEXT OF THE SWISS FRANC
On Fridays, the US CPI beat revived dollar bets, causing USD/CHF to test Can reach heights. This printout of data was a key indicator for assessing whether the U.S. economy had peaked (in terms of inflation) after the April decline. The basic numbers and headlines surprised the markets and reinforced the inflation rhetoric, leaving the Federal Reserve with little choice but to continue on his falcon path. With the US in a relatively strong economic position compared to its European counterparts, the economy can withstand a steeper rate hike path to deal with inflationary pressures. Whereas Oil prices remain strong, I do not see inflation decreasing and is also showing up on the Swiss market.
Currently the Swiss National Bank (SNB) adopted a rather neutral/dovish approach but with inflation exceeding 2% in May, money markets are pricing in a potential rate hike this week with around 20bps price right now. Should the SNB avoid tightening, we could see price action similar to that Japanese yen (JPY) in particular against currencies whose central banks increase rates.
SNB interest rate probabilities
Source: RefineItv
As a precursor to the SNB rate announcement, the Fed’s rate decision will set its interest rate with a consensus around a 50bps jump. The American dollars is likely to remain a bid ahead of the release, leaving little room for Swiss franc support ahead of the SNB. That being said, retail sales in the US could take a hit, giving USD/CHF bears some breathing room.
USD/CHF Economic Calendar
Source: Refinitiv
TECHNICAL ANALYSIS
USD/CHF daily chart
Chart prepared by Warren Venketas, GI
USD/CHF price action shows bulls looking to breach the March 2020 swing high at 0.9901 for the second time since early May 2022. Momentum is therefore reaching overbought levels as shown on the Relative Strength Index (RSI). A daily confirmation candle closing above this level could lead to higher highs next week and potentially the elusive 1.0000 parity mark. If the SNB remains neutral/dovish, this level is highly probable.
Resistance levels:
Support Levels:
IG CUSTOMER SENTIMENT DATA: BULLISH
The IGCS shows that retail traders are currently LONG on USD/CHFwith 62% of traders currently holding long positions (as of today). At DailyFX, we generally take a contrarian view of crowd sentiment, however, due to recent changes in long and short positioning, we are coming to a bullish bias.
Contact and follow Warren on Twitter: @Wenketas
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