Fundamental Overview
The USD got a boost yesterday following an ugly US ISM Manufacturing PMI as the markets went into risk-off. Overall, we had goldilocks data releases until now with an economy that’s been slowing but still growing. So, one bad report might not be a gamechanger, but the markets are increasingly sensitive to bad news in this part of the cycle.
On the monetary policy front, we had the FOMC rate decision on Wednesday and as expected it was a dovish one. Fed Chair Powell hinted to a September rate cut and didn’t even close the door for “several” rate cuts before the end of the year. The market has now fully priced in three rate cuts by the end of the year and continues to raise the chances of a 50 bps cut in September.
The CHF, on the other hand, has been gaining steadily against the major currencies because of the risk-off sentiment. On the monetary policy front, today’s Swiss CPI report came in line with expectations matching the last month’s readings. This continues to show that there’s no need for the central bank to worry about inflation. The probabilities for another rate cut in September are currently at 77% with a total of 40 bps of easing expected before year-end.
USDCHF Technical Analysis – Daily Timeframe
On the daily chart, we can see that USDCHF is falling below the 0.8730 support as risk-off sentiment continues to dominate the markets. We can expect the sellers to increase the bearish bets on this break and position for a drop into the 0.8550 level next. The buyers, on the other hand, will want to see the price rising back above the support to start positioning for a pullback into the 0.88 handle.
USDCHF Technical Analysis – 4 hour Timeframe
On the 4 hour chart, we can see that from a risk management perspective, the sellers will have a much better risk to reward setup at the trendline around the 0.88 handle. The buyers, on the other hand, will want to see the price breaking above the trendline to increase the bullish bets into the next major trendline around the 0.8950 level.
USDCHF Technical Analysis – 1 hour Timeframe
On the 1 hour chart, we can see that we have another minor trendline defining the current bearish momentum. The sellers will likely keep on leaning on it to position for further downside. The buyers, on the other hand, will want to see the price breaking higher to gains some more confidence and pile in for a rally into the 0.88 handle. The red lines define the average daily range for today.
Upcoming Catalysts
Today we conclude the week with the US NFP report where the consensus expects 175K jobs added in July and the Unemployment Rate to remain unchanged at 4.1%.
