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
USDCHF Daily
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
USDCHF 1 hour
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.