The USD/CHF currency pair is recovering after a couple of days of decline, now trading around 0.8310 during the Asian session on Monday. It appears that the pair is benefitting from upward pressure as the Swiss Franc (CHF) faces challenges due to increased short positions. This situation arises from the belief that other central banks may persist with their monetary tightening, whereas the Swiss National Bank (SNB) seems to be taking a different approach.
In September, the SNB kept its key interest rate steady at 0%. Adding to this dovish perspective, Vice Chairman Martin commented that there’s no need for any changes at this time, citing stable, low inflation and minimal risks as indicators that the Swiss economy is doing quite well.
Analysts from UOB Group have pointed out that USD/CHF is currently in a consolidation mode. They mentioned in their recent updates from October 2, while the spot stands at 0.8310, that the USD “has likely entered a range-trading phase between 0.8245 and 0.8365.” They add that even though USD has remained relatively steady over the past few days, they will stick with this view for now, keeping the short-term outlook within that specified range for the next one to three weeks.
However, any further increases in the USD/CHF could be limited by a weakening US Dollar (USD), which appears to be affected by dwindling domestic economic sentiment. This trend was notably reflected in the University of Michigan’s Consumer Sentiment Index, which dropped to 46.3 in October, down from 48.1 in September, and falling short of market expectations set at 47.6.
Insights from the CME FedWatch tool reveal that the likelihood of a rate hike of at least 25 basis points this month has decreased to 17.7%, down from 24.4% the week prior. On the other hand, the market is currently factoring in an 84.1% chance for a rate increase during the Fed’s upcoming December meeting.
Caution may be on the trading horizon as renewed concerns in the energy markets emerge due to geopolitical tensions in the Middle East. US President Donald Trump mentioned he is contemplating joining Saudi Arabia in its military efforts against Iran-backed Houthi militants in Yemen, following another serious incident at Riyadh’s international airport.
Technical Analysis:
Examining the daily chart, USD/CHF is seen trading at 0.8310, displaying a generally positive bias as it remains above both the short- and medium-term Exponential Moving Averages (EMAs). The nine-day EMA is just below the market level, while the 50-day EMA sits even lower, indicating a demand zone that could cushion against price pullbacks. The 14-day Relative Strength Index (RSI) is around 60, suggesting positive momentum that isn’t overstretched, thus allowing for potential upward movement as long as prices remain above the crucial immediate EMA support.
On the downside, the initial support level is seen at the nine-day EMA near 0.8307, with a more significant support level at the 50-day EMA around 0.8196, should a larger correction occur. Since there aren’t any close technical resistance levels in this data, a continuation upward seems likely as long as the pair defends these EMAs. Nevertheless, traders might want to keep an eye out for emerging swing highs on the chart for their next potential upside targets.
