USD/CHF Rebounds from 0.8900 Before SNB Meeting

USD/CHF Rebounds from 0.8900 Before SNB Meeting

Quick Look:

  • USD/CHF rebounded from 0.8900 to 0.8930 before SNB’s policy meeting.
  • SNB’s policy decision on Thursday and expected Fed rate cuts due to low inflation.
  • Bearish Head and Shoulders pattern, trading below the 200-period EMA at 0.9015.

In the early session on Monday in New York, the USD/CHF currency pair demonstrated a notable recovery, climbing from a low of 0.8900 to 0.8930. This movement signifies a potential shift in market sentiment as traders anticipate significant policy decisions later in the week.

The market’s attention remains on two critical events this week. Firstly, the Swiss National Bank (SNB) will announce its policy decision on Thursday. Secondly, there are growing expectations around the Federal Reserve’s (Fed) policy adjustments, influenced by recent inflation data. These events will have substantial implications for the USD/CHF pair.

Fed Expected to Cut Rates Twice, USD/CHF at 0.8930

The CME FedWatch tool indicates a high likelihood of the Federal Reserve implementing two rate cuts. An unexpectedly sharp decline in consumer and producer inflation for May drives this outlook. Concurrently, the SNB is expressing concerns about potential inflationary pressures exacerbated by a weakening Swiss Franc.

Key market indicators provide additional context: the US Dollar Index (DXY) is positioned at 105.50, and the yield on the 10-year US Treasury stands at 4.27%. Besides, the 14-period Relative Strength Index (RSI) for USD/CHF is 40.00, indicating a neutral to slightly bearish momentum.

USD/CHF Faces Bearish Trend Below 200-Period EMA of 0.9015

From a technical standpoint, the USD/CHF pair is displaying a bearish Head and Shoulders (H&S) pattern on the four-hour chart, suggesting a potential reversal in trend. The pair is below its 200-period Exponential Moving Average (EMA) at 0.9015, reinforcing a bearish trend outlook.

Looking ahead, two primary scenarios are outlined for the USD/CHF pair: a recovery scenario and a downtrend scenario. Should the pair sustain a recovery above 0.9000, it could target the June 3 high of 0.9036 and, subsequently, the May 28 low of 0.9086. Conversely, a decisive break below the 0.8900 level could see the pair falling towards the March 21 low of 0.8840, with the round-level support at 0.8800 providing additional targets.

USD/CHF Neutral Intraday, Watching 0.8880 and 0.8987 Levels

For the remainder of the day, USD/CHF is expected to trade above 0.8880, maintaining a neutral intraday bias. Key conditions to watch include a sustained break below the 0.8883 Fibonacci level, which could signal deeper bearish implications, potentially leading to a larger decline. On the other hand, a firm break above the 0.8987 support turned resistance level could indicate the completion of a corrective phase, setting sights on the 0.9157/0.9223 resistance zone.

Long-Term Outlook: USD/CHF Eyes 0.9243 for Bullish Reversal

In the broader context, the USD/CHF appears to be in a corrective pattern from its 2022 high of 1.0146. Critical resistance at 0.9243 could determine the medium-term outlook. A rejection and sustained break below the 38.2% retracement of 0.8332 to 0.9223 at 0.8883 would reinforce medium-term bearishness.

Conversely, a decisive break above 0.9243 could signal a trend reversal, shifting the medium-term outlook to bullish, with potential targets revisiting the 2022 high. As the market awaits pivotal policy decisions from the SNB and the Fed, the USD/CHF pair’s recent movements and technical indicators suggest a period of volatility. Traders should monitor key levels and events closely to navigate the potential shifts in market dynamics effectively.