USD/CHF Gains Strength, Driven by US Inflation Concerns and SNB Rate-Cut Expectations
Introduction
The USD/CHF currency pair has recently experienced an upward trend, reaching a high of 0.8860 in Friday's European trading session. This movement is attributed to a combination of factors, including a stronger US Dollar and expectations that the Swiss National Bank (SNB) will initiate a rate-cut cycle.
Factors Contributing to USD/CHF Rise
1. Stronger US Dollar:
The US Dollar has recently strengthened due to higher core Personal Consumption Expenditure Price Index (PCE) data for January. This indicates that the Federal Reserve (Fed) may face challenges in achieving its inflation target of 2%. The resulting appeal for US Dollar assets has contributed to the appreciation of the USD/CHF pair.
2. SNB Rate-Cut Expectations:
Meanwhile, Switzerland's central bank, the SNB, is expected to lead the global rate-cut cycle. Cooling price pressures in the Swiss economy have prompted market participants to anticipate rate cuts as early as March. This has weakened the Swiss Franc against other currencies, including the US Dollar.
Technical Analysis
The four-hour chart for USD/CHF suggests a near-term bullish outlook. The 20-period Exponential Moving Average (EMA) is sloping higher at 0.8821, indicating positive momentum. Additionally, the 14-period Relative Strength Index (RSI) has shifted into the bullish range between 60.00 and 80.00.
Key Support and Resistance Levels
- Support: 0.8746 (February 13 low), 0.8700 (round-level support)
- Resistance: 0.8886 (three-month high), 0.8932 (September 20 low), 0.8976 (November 8 low)
Market Outlook
Fresh upside potential for the USD/CHF pair exists if it breaks above the three-month high around 0.8886. This could lead to further gains towards the September 20 low at 0.8932 and the November 8 low at 0.8976.
Conversely, a breakdown below February 13 low at 0.8746 could expose the asset to the round-level support of 0.8700 and subsequently February 1 high around 0.8650.
Key Economic Indicator
- US Manufacturing PMI (Released February 17, 15:00 GMT): Investors anticipate factory data to come at 49.5, higher than 49.1 in January. However, it is expected to remain below the 50.0 threshold, indicating a contraction in the manufacturing sector.
Conclusion
The USD/CHF currency pair has gained strength due to a stronger US Dollar and expectations of SNB rate cuts. The technical analysis suggests a bullish outlook, with potential upside towards key resistance levels. However, a breakdown below February 13 low could expose the asset to further downside potential. Economic data releases, such as the US Manufacturing PMI, will provide additional insights on the market's direction.