The miss in the US CPI saw the US Dollar being sold off hard across the board as the market expected the end of the rate hike cycle after the July meeting. The US data though kept on surprising to the upside and this has led the market to have a rethink. In fact, we got another very strong US Consumer Confidence report yesterday that suggests that the economy is still good and the Fed might need to do more to bring inflation sustainably back to their target.
On the other hand, the SNB raised interest rates by 25 bps as expected at the last meeting and communicated that additional rate hikes cannot be ruled out as it maintains the hawkish stance. The recent Swiss CPI data showed the inflation rate returning back within the SNB target band and should translate into a pause for the SNB at the next meeting, barring any upside surprise before the meeting.
USDCHF Technical Analysis – Daily Timeframe
On the daily chart, we can see that USDCHF sold off pretty hard after the miss in the US NFP and extended the drop following the miss in the US CPI. The pair eventually bounced near the 0.86 handle as the US data kept on surprising to the upside, which might force the Fed to hike more than the market currently expects. From a risk management perspective, a good level for the sellers would be the 0.8761 resistance where we can find the 38.2% Fibonacci retracement level and the red 21 moving average.
USDCHF Technical Analysis – 4-hour Timeframe
On the 4-hour chart, we can see that the divergence with the MACD near the 0.8550 level was hinting to a possible pullback. In fact, the divergence is usually a sign of weakening momentum often followed by pullbacks or reversals. In this case, the price broke above the previous lower high and made a new higher high switching the short-term market structure from bearish to bullish. The price then pulled back to retest the broken level where we have the confluence with the 50% Fibonacci retracement level. This is where the buyers should step in with a defined risk below the support and target the 0.8761 resistance.
USDCHF Technical Analysis – 1-hour Timeframe
On the 1-hour chart, we can see that right now the price is consolidating a bit just above the support zone as the market is probably awaiting the FOMC rate decision today. More conservative buyers may want to wait for the price to first break above the last swing high at 0.8656 before piling in and target the 0.8761 resistance. If the price falls below the support zone though, the bullish setup would be invalidated, and the sellers are likely to extend the fall to a new low.
Upcoming Events
Today the main event will be the FOMC rate decision where the Fed is expected to hike by 25 bps. The market will look for signs of a pause or further rate hikes soon. Tomorrow, it will be the time for another US Jobless Claims report which gave the USD a boost last week due to much better-than-expected data. We conclude the week on Friday with the US PCE and ECI reports with the market likely to be more focused on the wages data.
