Mon, July 22, 2024

USD/CHF Rises to 0.8955 as Fed Adjusts Rate-Cut Outlook

swiss franc and U.S. dollar - USD/CHF

Quick Look:

  • USD/CHF rises to 0.8955, influenced by the Fed’s cautious outlook and Swiss economic data.
  • The Fed signals only one potential rate cut this year, shifting from three cuts previously projected.
  • Swiss producer inflation dropped by 0.3% MoM, raising expectations for SNB rate cuts.

The USD/CHF pair has climbed to 0.8955, reflecting market reactions to several significant events. The Federal Reserve has maintained a hawkish stance on interest rates, diverging from earlier expectations. Concurrently, the Swiss economic landscape shows signs of weakness, particularly in producer inflation, which bolsters the Swiss National Bank’s (SNB) prospects for rate cuts.

The Federal Reserve has adopted a more restrained outlook on interest rate cuts, indicating only one potential cut this year compared to the three cuts projected in March. This narrative underscores a “higher for longer” approach to interest rates, as stated by the Fed. Jerome Powell, the Fed Chair, emphasised the need for sustained improvements in inflation data over several months before considering further rate cuts. This cautious stance has impacted the USD/CHF, pushing it higher as investors recalibrate their expectations.

US May PPI Report Could Influence Future Fed Decisions

The market anticipates the release of the US Producer Price Index (PPI) for May, scheduled for 12:30 GMT. This report could provide additional insights into the inflationary trends and influence future Fed decisions. The anticipation surrounding this data has contributed to the pair’s current movements, with traders positioning themselves ahead of the report. A stronger-than-expected PPI could further support the dollar, potentially driving the USD/CHF higher.

Swiss Producer Inflation Falls by 0.3% MoM, 1.8% YoY

In Switzerland, the Producer and Import Prices for May revealed a contraction. Specifically, producer inflation dropped by 0.3% month-on-month, against an expected rise of 0.5%, while the annual PPI contracted by 1.8%. These figures have increased expectations for the SNB to consider rate cuts during their upcoming policy meeting in June. The weaker inflation data highlights the Swiss economy’s challenges, adding downward pressure on the Swiss franc and making rate cuts more likely.

USD/CHF at 0.8955; Key Levels: 0.8885 Support, 0.9000 Resistance

The USD/CHF has increased to 0.8955 in the current session, continuing its recovery from the previous day’s strong move. The US Dollar Index (DXY) has also extended its recovery to 104.80, further supporting the pair. The technical analysis shows significant support and resistance levels that could influence future price movements. The support levels include the 38.2% Fibonacci retracement at 0.8885 and the March 28 low at 0.9000, which now serves as major resistance.

On the upside, resistance levels are noted at the psychological barrier of 0.9000, the June 3 high at 0.9036, and the May 28 low at 0.9086. The long-term trend remains uncertain near the 200-day EMAs around 0.8950, while the 14-period RSI indicates a bearish reversal, shifting into the 20.00-60.00 range.

Long-Term USD/CHF Outlook: Bearish Near 200-Day EMAs

If the pair manages to sustain its recovery above 0.9000, it could target 0.9036 and 0.9086. Conversely, breaking below the June 4 low of 0.8900 would expose the pair to the March 21 low at 0.8840 and potentially further down to 0.8800. The mid-day outlook remains neutral, with the pair expected to trade within a range. A sustained break of the 0.8883 Fibonacci level could suggest larger bearish implications, while a firm break of the 0.8987 resistance might indicate the completion of the correction from 0.9223.

USD/CHF Correction from 0.9223 Could End at 0.8987

In the bigger picture, price actions from 0.8332 are seen as a corrective pattern to the downtrend from the 2022 high of 1.0146. Rejection by the 0.9243 resistance strengthens the medium-term bearish case, but a decisive break of 0.9243 could argue for a trend reversal towards a bullish outlook, targeting 1.0146. The USD/CHF remains at a critical juncture, influenced by both US and Swiss economic indicators and central bank policies.

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