USD/CHF nears death cross as Swiss franc surges

The USD/CHF exchange rate continued its downward trend this week, as it tumbled to its lowest point since March. It has crashed by almost 5% from its highest point this year and is about to form a death cross pattern.

US PCE and Federal Reserve decision

The USD to Swiss franc exchange rate has been in a strong downtrend as the greenback slumped. The US dollar index has dropped to $104.22 from the year-to-date high of $106.52.

This decline happened as investors predicted that the Federal Reserve would start cutting interest rates sooner than expected.

These hopes increased after the US published mixed economic data this month. In a report, the Institute of Supply Management (ISM) said that the country’s manufacturing and services PMIs dropped below 50 in June. 

A report by the S&P Global on Wednesday showed that the manufacturing PMI dropped from 51.6 in June to 49.5 in July. These numbers, together with the deteriorating housing market, mean that the economy is slowing.

Meanwhile, other economic data showed that the unemployment rate rose to 4.1% in June, its highest level since 2021. At the same time, inflation continued moving downwards, with the headline and core Consumer Price Index (CPI) fell to 3.0% and 3.2%, respectively.

Therefore, a combination of falling inflation and a slowing economy have raised the odds that the Fed will start cutting rates as soon as in September. 

This view was confirmed by Jerome Powell who noted that the bank was now focused on the labour market. He hinted that the bank was considering cutting rates.

The next important USD/CHF news will come out on Friday when the US will release the latest personal consumption expenditure (PCE) data. PCE is watched more closely than the CPI because it is more broad in that it considers changes in price movements in rural and urban areas. 

Economists believe that the PCE and core PCE figures rose slightly on a month-on-month basis but dropped slightly on an annualised basis. The core CPI is expected to come in at 0.2% while the headline figure will be at 0.1%.

The Federal Reserve will deliver its interest rate decision next week while the Bureau of Labor Statistics (BLS) will release the non-farm payroll (NFP) data on Friday. It will likely leave rates unchanged and signal that it will cut in September or December.

With the Fed now focused on the labor market, the jobs report will be more important than in the past. Another increase in the unemployment rate will raise hopes of rate cuts this year.

Swiss National Bank rate cuts

Meanwhile, the Swiss National Bank has been more dovish this year as inflation continued falling. 

It has become the most dovish central banks in the developed world. It slashed rates for the second straight time in June and analysts expect that it will deliver more cuts later this year. 

The most recent data showed that the Swiss inflation stood at 1.3% in June, down from 3.5% in 2022. Analysts expect that inflation will drop below 1% in the next few months. In a note, an analyst at Ballinger Group said:

“I expect the SNB to follow up with a third cut next quarter, and there is potential for a fourth in December if there is still high conviction in the restrictive level of monetary policy. The dovish outlook puts the franc in a vulnerable position over the coming quarters.”

Therefore, the USD/CHF pair is falling because of the overall weaker US dollar and stronger franc. The EUR/CHF pair tumbled to 0.9525 while the GBP/CHF fell to 1.130. This retreat has also coincided with the stronger Japanese yen as the USD/JPY and EUR/JPY pairs crashed.

USD/CHF forecast

USD/CHF chart by TradingView

The USD to CHF exchange rate peaked at 0.9223 in May this year and has now been in a steep downward trend. It has continued to make several lower lows and higher lows, meaning that bears are in control.

The USD/CHF pair has recently dropped below the key support level at 0.8827, its lowest swing on June 8th of this year. By falling below that level, the pair managed to invalidate the double-bottom pattern.

Meanwhile, the pair is about to form a death cross pattern, where the 200-day and 50-day Exponential Moving Averages (EMA) cross each other. In most cases, this cross is one of the most bearish signs in the market.

At the same time, the Awesome Oscillator has moved below the neutral level and formed seven consecutive red bars. The Relative Strength Index and the MACD have all pointed downwards. 

Therefore, the path of the least resistance for the pair is bearish, with the next point to watch being at 0.8700. 

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