The US Q1 inflation data has been consistently surprising to the upside leading to a repricing in interest rates expectations with the market now fully pricing just one rate cut in 2024. On the other hand, the Switzerland inflation readings have been doing the opposite leading to the first rate cut from the SNB in March and the market expecting the central bank to cut by 25 bps at every subsequent meeting. This classic monetary policy divergence triggered a big move in the USDCHF pair with the market bidding up the USD aggressively on every hawkish catalyst and selling off the CHF on lower inflation figures.
USDCHF Technical Analysis – Daily Timeframe
On the daily chart, we can see that USDCHF has almost reached a key resistance around the 0.9250 level. That’s where we can expect a rejection with the buyers taking some profits off the table and the sellers stepping in with a defined risk above the level. From a risk management perspective, the buyers will have a much better risk to reward setup around the trendline, while the sellers will look for a break below it to increase the bearish bets into new lows.
USDCHF Technical Analysis – 1 Hour Timeframe
On the 1 hour chart, we can see that the pair has been ranging between the 0.9080 support and the 0.9150 resistance for almost a month as the market awaited new catalysts to push the price in either direction. Yesterday’s US Q1 ECI data was the catalyst that triggered another bullish impulse with the momentum increasing once the price broke out of the range. If we get some downside surprise in today’s US data, we should see the pair retesting the broken resistance now turned support.
What could be the next catalysts?
We know that the market has already priced in the rate cuts for the SNB and just one cut for the Fed, so what could trigger a break above the 0.9250 resistance or reverse completely the trend? Well, anything that can change the expectations around the baseline will be the catalyst for the next big move. For the SNB we have the inflation data tomorrow and the market will need another downside surprise to price in the chances for more aggressive rate cuts which will likely weigh on the CHF. For the USD, we have the Fed and lots of top tier data this week.
If the Fed delivers a hawkish surprise, we can expect the USD to run across the board and that could be the catalyst for a break above the resistance. At the moment though, the data is more important than the Fed because we might get a hawkish surprise yeah, but then if the data deteriorates quickly, the market will start to price back in three or more rate cuts. For this reason, the ISM PMIs will be important as the market will want to see if the data confirms the findings in the S&P Global US PMIs. Then we have of course the US NFP which is expected to be good, but watch out for downside surprises, especially if coupled with weak ISM PMIs as that could be the catalyst to reverse the trend and trigger a bigger correction.
