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NEW YORK, October 26, 2023
U.S. inflation data could pivot the Federal Reserve’s next move, impacting the USD/CHF pair.
- USD/CHF rebound Tuesday was likely driven by traders squaring positions.
- Upcoming U.S. CPI and PPI data will heavily influence Fed rate hike expectations.
- The USD/CHF pair has shown a strong correlation with U.S. Treasury yields recently.
- Technical indicators suggest a bearish bias for USD/CHF below key moving averages.
The prospect of a retest of the July swing low in USD/CHF might be on hold. The pair saw a rebound on Tuesday, likely fueled by traders adjusting their positions ahead of crucial U.S. economic data releases. Markets are increasingly anticipating a potential shift from the federal Reserve. this could signal the Fed’s first move to ease its monetary policy sence december 2024.The main questions now revolve around the timing and magnitude of any such action.
Crucial U.S. Consumer price Index (CPI) and Producer Price Index (PPI) reports are scheduled over the next two days. these figures will be pivotal in shaping expectations for the Fed’s September meeting. Markets are weighing whether the Fed will opt for a 25 or 50-basis-point rate cut, or hold steady if the data proves unexpectedly strong.
For USD/CHF traders, this data holds significant weight. The pair has maintained correlation coefficient scores of 0.8 or higher with U.S. Treasury yields out to the 10-year maturity in recent weeks. If this trend continues, USD/CHF is likely to mirror movements in U.S. yields.
source: TradingView
Key Events to Watch
While a deep dive into every upcoming report isn’t necesary, understanding the drivers is key. services prices, in particular, are expected to be a primary determinant of the Fed’s path forward.
Beyond the inflation reports, the U.S. economic calendar includes other events that could sway interest rate markets. The 10-year and 30-year Treasury auctions are noteworthy. However, a recent 2-year note auction on Tuesday seemed to pass with minimal market impact.
Additionally, Swiss National Bank President Martin Schlegel is slated to speak on Wednesday. He recently indicated that the threshold for implementing negative interest rates in Switzerland remains elevated. Unless he signals a significant policy reversal, this event is unlikely to be a major market mover.
USD/CHF: A Stalled Breakdown?
Source: TradingView
The anticipated downside break in USD/CHF has yet to push toward the July lows. On Tuesday, the pair bounced from minor support around 0.7920, possibly due to position adjustments. It has as moved back towards a confluence of former uptrend support and horizontal resistance at 0.7986, creating an opportunity to reassess trading strategies based on the upcoming inflation data.
Current technical signals suggest a mildly bearish outlook.The Relative Strength Index (RSI) is trending downward and remains below 50.The Moving Average Convergence Divergence (MACD) has crossed below its signal line, indicating weakening momentum. These factors, combined with the price trading below both the 50-day and 200-day moving averages, favor short positions.
A potential short trade could involve selling below 0.7986, with a stop placed above this level. Initial targets would be 0.7920, with 0.7873 as a secondary option. Conversely, if the rebound extends past 0.7986, the strategy could shift to longing the pair, with a stop below that level. Shorter-term traders might target the 50-day moving average, while longer-term resistance levels include the downtrend around
