The USD/CHF pair experienced a pullback during the Asian session on Monday, trading around 0.8910 after reaching a four-month high of 0.8957 in the previous session. This correction reflects broader market dynamics driven by shifting expectations for monetary policy in the U.S. and Switzerland.
Key Market Drivers
US Dollar Weakness
Treasury Secretary Nomination:
The appointment of Scott Bessent, a seasoned Wall Street figure, as Treasury Secretary by President-elect Donald Trump sparked optimism in bond markets.
This optimism contributed to a decline in the US Dollar Index (DXY) to around 107.00 after hitting a two-year high of 108.07 on Friday.
Federal Reserve Expectations:
Robust S&P Global US PMI data suggests strong private sector activity, reinforcing views that the Federal Reserve may proceed cautiously with rate cuts.
Futures markets have revised the probability of a December rate cut to 50.9%, down from 61.9% a week ago. This limits the USD’s downside but introduces caution.
Treasury Yields:
Optimism over Trump’s proposed policies on tariffs, taxes, and immigration has kept Treasury yields buoyant, further constraining USD losses.
Swiss Franc Headwinds
Inflation Decline:
Switzerland’s inflation rate dropped to 0.6% in October, its lowest since June 2021. This raises expectations for further rate cuts by the Swiss National Bank (SNB) into 2025.
SNB Policy Focus:
SNB Chairman Martin Schlegel reaffirmed the central bank‘s commitment to maintaining inflation within the 0-2% range, emphasizing its importance for economic stability.
Deflation Concerns:
With inflation continuing to slide, markets anticipate that the SNB may adopt more dovish measures, weakening the Swiss Franc’s appeal.
Technical Analysis
USD/CHF Levels to Watch:
Immediate Support:
0.8900: A psychological level and a minor support zone.
0.8850: Aligns with the 50-day moving average and provides a stronger floor.
Resistance Levels:
0.8957: The recent four-month high.
0.9000: A key psychological barrier and a potential breakout zone.
Momentum Indicators:
RSI: Near 60, indicating bullish momentum but retreating from overbought conditions.
MACD: Positive but showing signs of convergence, hinting at a possible pause in upward momentum.
Outlook for USD/CHF
The pair’s near-term trajectory will depend on upcoming data and central bank rhetoric:
Upside Potential: A resurgence in USD strength, driven by robust U.S. data or elevated Treasury yields, could push USD/CHF toward 0.9000.
Downside Risks: A softer USD or a hawkish surprise from the SNB could prompt a retest of 0.8850.
Investors should closely monitor U.S. macroeconomic releases, such as the Personal Consumption Expenditure (PCE) Price Index, for clues on Fed policy, alongside Swiss inflation and economic data.
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