The USD/CHF exchange rate fell for the second consecutive trading day, reaching a new low that’s more than a week old. The decline could be entirely attributable to some technical selling, which occurred in conjunction with muted demand for USD. Bets on aggressive rate hikes from the Fed in an effort to prop up the USD and limit losses in advance of Powell’s speech
On Thursday, the United States Dollar to Swiss Franc currency pair extended the retracement decline that began the previous day from the highest level since July 14 and edged down for the second consecutive day. This also represents the fourth day of a negative move in the previous five, which has dragged spot prices to almost a one-week low, which was below the middle of the 0.9700s during the first part of the European session.
It turns out that the overnight inability to gain acceptance above the mid-0.9800s was a crucial element that prompted some technical selling around the USD/CHF pair. A muted price action for the US dollar likewise fails to provide much in the way of assistance. Having said that, the continued decline does not seem to be caused by any fundamentally clear trigger, and it is thus more likely to be contained, at least for the time being. The level of the 50-day simple moving average (SMA), which is currently at 0.9689, is likely to provide a safety net for price and a rallying point for bulls. One place where the decline may slow is at this level.
A headwind for the dollar and some support for the USD/CHF pair could be expected to come from market participants’ expectations that the Federal Reserve would maintain its aggressive policy tightening course. Because of this, it is prudent to wait for strong follow-through selling before confirming that the recent bullish momentum seen over the course of the past month or so has already run out of steam.
A new trigger might come from Federal Reserve Chair Jerome Powell’s address, which is scheduled to take place later during the early North American session. Alternatively, investors could choose to go to the sidelines and wait for the speech. Powell’s comments will be scrutinised for clues about the central bank’s policy outlook, and they will reinforce bets for a supersized rate hike of 75 basis points at the next FOMC meeting, which will take place on September 20-21.
This, in turn, will play a crucial role in determining the price dynamics of the USD and will offer new impetus to the pair USD/CHF. In addition to this, the general risk sentiment of the market as a whole may drive demand for the safe-haven Swiss franc and further contribute to the production of short-term trading opportunities around the major.