USD/CHF Analysis: Potential Downside Risk Ahead
As the USD/CHF pair experiences a decline in recent times, market analysts Frances Cheung and Christopher Wong from OCBC attribute this trend mainly to the USD leg. The markets have adjusted their expectations for a larger-than-expected Fed rate cut, leading to a bearish bias for the USD. If this broader USD depreciation trend continues, it could signal further downside potential for the USD/CHF pair.
Factors Influencing the Market
- Initial jobless claims data and the recent WSJ article on the Fed’s rate cut dilemma have bolstered market confidence for a 50bp Fed cut.
- The Swiss National Bank (SNB) is expected to maintain a neutral monetary policy and is likely to lower the policy rate by 25bp to 1% at its upcoming Monetary Policy Committee (MPC) meeting on 26 Sep.
- Swiss inflation remains under control at 1.1%, aligning with SNB’s expectations, enabling room for policy easing.
- Industry lobby groups are urging SNB and the government to intervene to support exporters by curbing the strength of the Swiss Franc (CHF).
Technical Analysis and Trading Outlook
Despite the recent bearish momentum, the USD/CHF pair maintains mild bullish momentum on the daily chart. The Relative Strength Index (RSI) has eased, indicating potential for two-way trades. However, a less dovish Fed stance could trigger a rebound in USD/CHF.
- Key resistance levels: 0.8780 (21-day Moving Average)
- Breakout targets: 0.8575 (23.6% Fibonacci retracement level), 0.8640 (50-day Moving Average)
- Support levels: 0.84, 0.8375
Given these factors, traders should closely monitor the upcoming SNB MPC meeting and Fed announcements for potential market shifts in the USD/CHF pair.
Analysis Breakdown
The USD/CHF pair’s recent decline is driven by market expectations of a larger Fed rate cut, indicating a bearish bias for the USD. The SNB’s upcoming policy decisions and industry pressures to curb CHF strength add further complexity to the market dynamics.
From a trading perspective, understanding key resistance and support levels is crucial for making informed decisions. Traders should consider the impact of upcoming central bank meetings and economic data releases on the USD/CHF pair’s direction.