Fundamental Overview
Last week, the Fed finally started its easing cycle and decided to do it with a 50 bps cut. The market was already leaning towards a 50 bps move, so it wasn’t a surprise.
The larger cut was framed as kind of a risk management move with the dot plot showing two more 25 bps cuts by the end of the year and less than the market expected in 2025.
The US Dollar weakened initially but eventually shot higher as Treasury yields rallied on a less dovish than expected Powell with the market pricing out the aggressive rate cuts expected in 2025.
Now that the decision is behind us, the focus will be on the economic data. If we start to see an improvement, then Treasury yields will likely continue to rise and drive USDCHF higher. Conversely, if the data weakens significantly, the market will start to worry about a recession and take USDCHF lower.
For the CHF, this week the SNB is expected to cut rates by 25 bps and bring the policy rate to 1.00%. The market is assigning a 46% probability of a larger 50 bps cut. The reason for this is because inflation has been surprising to the downside with the last release showing a drop to 1.1%, which is much lower than the SNB’s 1.5% projection for Q3.
Moreover, SNB’s Jordan said in late August that the continued strength of the Swiss Franc has been hurting the Swiss industry. Therefore, there’s a high chance that the central bank either delivers a 50 bps cut (especially after the recent Fed’s move) or jawbones the currency by threatening intervention.
USDCHF Technical Analysis – Daily Timeframe
On the daily chart, we can see that USDCHF is approaching the key 0.8555 resistance. That0s where we can expect the sellers to step in with a defined risk above the level to position for a drop back into the 0.84 handle. The buyers, on the other hand, will want to see the price breaking higher to increase the bullish bets into the 0.87 handle.
USDCHF Technical Analysis – 4 hour Timeframe
On the 4 hour chart, we can see that the price recently broke above the major downward trendline with the buyers piling in to target a rally into the 0.8555 resistance. Overall, we remain in the range between the 0.8555 resistance and the 0.8400 support. The market participants will likely keep on playing the range until we get a breakout.
USDCHF Technical Analysis – 1 hour Timeframe
On the 1 hour chart, we can see that we have a minor resistance zone around the 0.8515 level where the price got rejected from several times in the past days. The buyers will want to see the price breaking higher to increase the bullish bets into the 0.8555 resistance targeting a breakout.
The sellers, on the other hand, will likely keep on defending the level to position for a drop back into the support. The red lines define the average daily range for today.
Upcoming Catalysts
Today we have the US Flash PMIs. Tomorrow, we get the US Consumer Confidence report. On Thursday, we have the SNB Rate Decision and the US Jobless Claims. On Friday, we conclude the week with the US PCE.
