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USD/CHF Approaches Breakout: Strong U.S. Data and SNB Rate Cut Await

Hello Traders! 🌟


Today, we take a closer look at the USD/CHF pair as it moves upward, buoyed by favorable U.S. economic data and growing speculation ahead of the Swiss National Bank’s (SNB) interest rate decision. Both fundamental and technical factors are at play, making this an important pair to watch as the week unfolds.


 

Market Overview


As of September 23, 2024, USD/CHF is trading around 0.8515, showing signs of upward correction after weeks of weakness. This recovery comes on the back of positive macroeconomic data out of the U.S. and anticipation of the Swiss National Bank's (SNB) interest rate cut expected later this week.


U.S. Economic Data: The U.S. economy continues to display resilience, with recent data signaling improvement across several fronts. The Philadelphia Fed Manufacturing Index came in higher than expected at 1.7 versus a forecast of -0.8, while initial jobless claims for the week landed at 219K, lower than the anticipated 230K. These indicators suggest that the labor market remains robust, adding momentum to the USD as traders look for clues on the Federal Reserve’s next moves following the recent 50-basis-point rate cut.


Swiss National Bank by Baikonur, licensed under CC BY-SA 3.0. Source: Wikimedia Commons.

Swiss National Bank’s (SNB) Anticipated Move: Meanwhile, the SNB is expected to announce a 25-basis-point rate cut, which would lower borrowing costs to 1.00%. This move is seen as necessary to stimulate growth and counteract the recent downturn in inflation, which has fallen below the bank's target of 2%. Traders will be closely monitoring the SNB’s guidance to gauge whether additional cuts might follow later in the year. This anticipated dovish shift has contributed to the weakening of the Swiss Franc, making USD/CHF's upward momentum more pronounced.


 

Fundamental Insights


The interest rate differential between the U.S. and Switzerland remains a primary driver for the USD/CHF pair. The Federal Reserve’s aggressive rate cut to 5.00% has already supported USD strength, with further cuts on the table depending on future inflation data and economic indicators.


In contrast, the SNB is expected to follow a more cautious monetary policy, with only a 25-basis-point cut projected at their meeting on September 26, 2024. While inflation remains low in Switzerland, the economy has struggled with slow growth, necessitating continued rate cuts to spur economic activity.


From a broader perspective, analysts from ING and Société Générale suggest that the Swiss Franc could remain under pressure as the SNB might consider additional cuts later this year, making CHF less attractive for yield-seeking investors. With the USD benefitting from stronger economic data, this divergence in monetary policy favors a continued rally in USD/CHF.


 

Technical Analysis


On the daily chart, USD/CHF is showing signs of stabilizing after a steep decline in recent months. The pair is currently testing the 0.8515 resistance level, and a successful break above this level could see the pair move toward the next resistance at 0.8635 and potentially 0.8745.


Support levels can be found at 0.8405 and 0.8330, with a further downside risk toward 0.8190 if the SNB surprises markets with a more dovish tone or if the U.S. economy faces unexpected setbacks.


Key technical indicators also support the upward movement:


  • The Alligator Indicator shows that the fast EMAs are above the signal line, confirming a long-term buy signal.

  • The Awesome Oscillator (AO) histogram is forming correction bars, suggesting momentum may be building for further gains.



 

Market Considerations


Bullish Scenario: Should USD/CHF successfully break above the 0.8515 resistance level, it could open the door for further gains toward 0.8635 and 0.8745. This scenario would likely be supported by positive U.S. economic data and a dovish SNB outlook. Additionally, any signals of further U.S. rate cuts or easing of inflation could keep the USD strong in the near term.


Bearish Scenario: Conversely, if the pair fails to consolidate above 0.8515, the downward trend could resume, with 0.8405 and 0.8330 being the next major support levels. A more hawkish-than-expected stance from the SNB could also trigger a bearish correction.


 

What to Watch for in USD/CHF


As we head into the Swiss National Bank’s meeting on September 26, traders should keep a close eye on key technical levels for USD/CHF. A break above 0.8515 could signal continued bullish momentum, with upside potential toward 0.8635 and 0.8745. On the other hand, failure to hold above 0.8515 may lead to a pullback toward 0.8405 and potentially lower.


With central bank policies and macroeconomic data continuing to drive the market, it’s important to stay updated on both U.S. and Swiss developments. The interplay between these two economies will likely set the tone for the USD/CHF pair in the days ahead.


🔔 Remember to assess all relevant factors and conduct thorough research before making any trading decisions.


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