Fundamental Overview
The USD has been generally weaker this week after the strength seen last week due to some risk off sentiment. In fact, it looks like it’s just sentiment that’s been driving the market recently as the soft US inflation figures just consolidated the market’s expectation of two cuts for this year despite a bit more hawkish than expected FOMC decision.
The CHF, on the other hand, got a boost a couple of weeks ago from SNB’s Jordan comments where he said that if upward risks to Swiss inflation were to materialise, these would most likely be associated with a weaker franc, which could be counteracted by selling foreign exchange reserves (buying CHF). On top of that, the Swiss Franc found support from the recent risk-off sentiment.
Today, the SNB cut interest rates by 25 bps to 1.25%. The market was pricing a 68% chance of a cut going into the decision, so it’s not really a surprise. The central bank also lowered its inflation forecasts, so that added to the Swiss Franc weakness.
The only thing bullish for the CHF was the line saying that the SNB “will be ready to intervene in FX market if needed and as necessary”, although we already know that, and they won’t do it unless inflation surprises to the upside or they see risks of inflation overshooting their projections.
USDCHF Technical Analysis – Daily Timeframe
On the daily chart, we can see that USDCHF yesterday broke through the key support at 0.8885 and extended the losses as momentum players piled in. After the SNB decision, the pair erased the losses and it’s now back around the support-turned-resistance.
This is where we can expect the sellers to step in with a defined risk above the level to fade the reaction and position for a drop into new lows with a better risk to reward setup. The buyers, on the other hand, will want to see the price breaking higher to increase the bullish bets into the 0.90 resistance next.
USDCHF Technical Analysis – 4 hour Timeframe
On the 4 hour chart, we can see that we have a minor trendline adding some confluence to the resistance zone around the 0.8885 level. The price is currently breaking out which should give the buyers a bit more conviction and see them increasing the bullish bets into the 0.90 handle. From a risk management perspective it doesn't look good at the moment as the price got already overstretched as we will see on the 1 hour timeframe analysis and the decision wasn't such a big surprise.
USDCHF Technical Analysis – 1 hour Timeframe
On the 1 hour chart, we can see that we also have the 61.8% Fibonacci retracement level adding confluence to the trendline and the resistance. This should technically strengthen this resistance zone. Moreover, the upper bound of the average daily range stands right at the trendline, which is just another confluence for the resistance.
This gives the sellers a very good zone where to short from with a defined risk above it. It’s unlikely to see a decisive breakout to the upside today, but that’s what the buyers will want to see to gain more control. If the price drops from here, the buyers will look for a dip to buy around the 0.8850 level.
Upcoming Catalysts
Today we have the US Housing Starts, Building Permits and the latest US Jobless Claims figures. On Friday, we conclude the week with the US PMIs.