The USD has generally been weaker this week, following the strength it exhibited last week, largely due to a shift towards risk-off sentiment. This market movement appears to be driven by sentiment rather than fundamentals, as the recent soft US inflation figures have reinforced expectations of two rate cuts this year, despite a somewhat more hawkish than expected FOMC decision.
Conversely, the CHF received a boost a couple of weeks ago from comments by SNB’s Jordan. He stated that if upward risks to Swiss inflation were to materialize, they would likely be linked to a weaker franc, which could be mitigated by selling foreign exchange reserves (buying CHF). Additionally, the Swiss Franc has been supported by the recent risk-off sentiment.
Today, the SNB cut interest rates by 25 basis points to 1.25%. This decision was largely anticipated, with the market pricing in a 68% chance of a cut. Additionally, the central bank lowered its inflation forecasts, further contributing to the Swiss Franc's weakness.
The only bullish factor for the CHF was the statement that the SNB “will be ready to intervene in the FX market if needed and as necessary.” However, this is not new information, as the SNB typically only intervenes if inflation surprises to the upside or if there are risks of inflation overshooting their projections.
On the daily chart, USD/CHF broke through the key support at 0.8885 yesterday, extending its losses as momentum traders piled in. Following the SNB decision, the pair erased these losses and is now hovering around the support-turned-resistance level.
At this point, sellers are likely to step in, with a defined risk just above this level, aiming to fade the reaction and position for a drop to new lows, presenting a favourable risk-to-reward setup. Conversely, buyers will look for a break above this level to increase their bullish positions, targeting the next resistance at 0.90.
On the 4-hour chart, a minor trendline adds confluence to the resistance zone around the 0.8885 level. The price is currently breaking out, which could bolster buyers' confidence and encourage them to increase bullish positions, aiming for the 0.90 handle. However, from a risk management perspective, the situation appears less favourable at the moment. The price has already become overstretched, as shown in the 1-hour timeframe analysis, and the SNB decision was largely anticipated, limiting its impact on market sentiment.
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