Mon, May 20, 2024

USDCHF is moving in an Ascending channel and the market has fallen from the higher high area of the channel

The SNB is expected to implement a 25bps rate hike this week to address inflation below 2%.

Inflation Below Target Raises Questions about SNB’s Rate Hike

The Swiss franc, known for its stability, has been exhibiting signs of weakness in recent times, largely attributed to concerns about low inflation in the Swiss economy. This article explores the factors contributing to the softening of the Swiss franc and how it might prompt the Swiss National Bank (SNB) to reconsider its stance on interest rate hikes.

 SNB’s Rate Hike Expectations and Forward Guidance

Rate hike

With inflation consistently below the SNB’s target, there is growing speculation that the central bank may decide to halt its monetary tightening measures. Traders are eagerly awaiting the upcoming policy meeting, where it is widely anticipated that the SNB will raise interest rates from 1.75% to 2%. However, the focus will likely shift to the forward guidance provided by Chairman Thomas Jordan, who may express concerns about the transient nature of the inflation slowdown, especially given the volatility in energy prices as winter approaches.

Testing Key Levels and Potential Implications

The Swiss franc is currently testing the crucial psychological level of 0.9000, with 0.8760 serving as the first level of support.

EURCHF is moving in the Box pattern and the market has rebounded from the support area of the pattern

EURCHF is moving in the Box pattern and the market has rebounded from the support area of the pattern

In the event that the SNB opts not to raise rates, it could add complexity to the global monetary policy landscape, especially when considering the positions of other major central banks. This article will delve into the potential ramifications of such a decision, providing insights from RBC’s analysis on the CHF landscape, including market positioning and technical levels.

Shifting Focus to Global Monetary Policy

Shifting Focus to Global Monetary Policy

As the Swiss franc grapples with uncertainty, investors and traders are redirecting their attention to upcoming interest rate decisions by the Federal Reserve (Fed) and the Swiss National Bank (SNB), scheduled for announcement in the coming week. This shift in focus is influenced by recent developments in global markets.

Positive Signs in Global Markets

In the London session, S&P500 futures witnessed gains, signaling a reduction in the risk-off sentiment among investors. This shift in sentiment followed encouraging economic data from China, which alleviated concerns of a global economic slowdown. China’s Industrial Production recorded an annual rise of 4.5%, while Retail Sales expanded by 4.6%, surpassing expectations.

GBPCHF is moving in the Box pattern and the market has reached the horizontal support area of the pattern

GBPCHF is moving in the Box pattern and the market has reached the horizontal support area of the pattern

Concurrently, the US Dollar Index (DXY) corrected slightly, moving closer to 105.20 after reaching a six-month high of 105.43. This correction can be attributed to an improvement in market participants’ risk appetite.

The Impact of Rising Gasoline Prices

Impact of Rising Gasoline Prices

Although the US Dollar showed resilience against strong Retail Sales data for August, it failed to capitalize on this positive economic indicator due to the notable influence of rising gasoline prices. US President Joe Biden has made commitments to address the surge in gasoline prices, which saw a staggering 106% increase in August. This section of the article examines how these factors could affect the broader economic landscape.

SNB’s Hawkish Stance and Inflation Management

Turning our attention back to the Swiss Franc, it is crucial to understand the SNB’s monetary policy stance. The central bank is expected to maintain a hawkish tone, largely driven by the fact that inflation in the Swiss economy has yet to convincingly dip below the 2% threshold.

CADCHF is moving in an Ascending channel and the market has rebounded from the higher low area of the channel

CADCHF is moving in an Ascending channel and the market has rebounded from the higher low area of the channel

SNB Chairman Thomas J. Jordan has already emphasized that the consequences of higher inflation are more concerning than those of a lower price index. This section explores the SNB’s strategy and its implications for the Swiss franc.

Swiss Franc’s Stellar Performance

Despite the concerns surrounding inflation, the Swiss franc has emerged as the top-performing major currency this year, gaining 3.5% against the US dollar, outperforming its core peers. Economists at Scotiabank weigh in on the Swiss franc’s outlook, taking into account the recent moderation in inflation and policymakers’ inclination towards additional “insurance” tightening. They also discuss how easing inflation pressures may influence the currency’s broader trend and the stability of the EUR/CHF exchange rate.

 Predictions for the Swiss Franc

Predictions for the Swiss Franc

Concluding the article, we delve into the predictions for the Swiss franc’s future performance. As inflation pressures ease and policymakers contemplate further tightening measures, the CHF’s broader trend is likely to be affected. Additionally, with a focus on exchange rates, we explore the potential stabilization of the EUR/CHF rate and anticipate a rebound of the EUR to 0.98 against the CHF by the end of the year.

CHFJPY is moving in the Box pattern and the market has rebounded from the support area of the pattern

CHFJPY is moving in the Box pattern and the market has rebounded from the support area of the pattern

In this comprehensive analysis, we will dissect the intricacies of the Swiss franc’s current situation, from the challenges posed by low inflation to the potential impact of SNB’s policy decisions, global market dynamics, and predictions for the currency’s performance in the coming months.


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