USDCHF analysis: a new downtrend is here

12 Ogo 2022

USD/CHF fundamental analysis

• Switzerland's annual rate of inflation was 3.4% in July 2022, the same as in June. It was the highest inflation rate since October 1993, but it fell short of market expectations of a 3.5% increase. As a result, inflation remains well above the Swiss National Bank's 2% target, necessitating a steady pace of interest-rate hikes.
  
  
• The Swiss unemployment rate was 2% in July 2022, the same as in June and the lowest since November 2001.This indicates that the Swiss labour market momentum is strong and the economy is performing exceptionally well despite negative spillovers from the deteriorating economic outlook in the Eurozone.
  
  
• The SNB is expected to raise rates by 50 basis points again in September, marking the second half-point increase in a row and bringing the policy rate in positive territory for the first time since July 2011. The SNB is now also willing to allow the CHF to appreciate further in order to mitigate inflationary risks.
  
  
• US inflation rate has surprised to the downside in July (8.5% vs 8.7% expected). This led market participants to expect less aggressive hikes from the Federal Reserve. If this deceleration in U.S. inflation persists, the interest rate differential between the Federal Reserve and the Swiss National Bank (SNB) will narrow, thereby supporting the Franc.
  
  
• Global growth worries and rising goldprices may sustain demand for safe-haven and recession-hedging assets such as the Franc.
  

USD/CHF technical analysis

• USD/CHF fell 6.5% from its highs in June. The turning point that determined the change in trend in USD/CHF was the double top bearish reversal pattern, with bearish divergences in the RSI and MACD.
  
  
• The 0.95-0.955 neckline support was initially tested in late June, whereupon the pair rebounded; however, it was successfully broken to the downside this week with an extension to 0.941.
  
  
• The pair is currently trading within a descending channel and has recently broken the 200-day moving average's dynamic support, which formed an important price floor during 2022.
  
  
• Moreover, the breakdown of the 61.8% Fibonacci retracement level (2022 high/low) is also noteworthy, supporting the trend reversal thesis.
  
  
• Now, the focus has shifted to 0.93 (78.6% Fibonacci and April 2022 support) A breach of this level could prompt USD/CHF to test the 0.915 (March support) and then 0.909-0.91 levels (2022 low).
  
  

Idea written by Piero Cingari, forex and commodity analyst at Capital.com