USD/CHF dribbles around mid-0.9500s as US inflation looms

USD/CHF treads water around 0.9560, despite picking up bids ahead of Wednesday’s European session, as markets remain quiet amid a cautious mood before the US inflation data release.

While portraying the market’s action, the US 10-year Treasury yields struggle to extend the previous day’s rebound to 2.79%, around 2.797% by the press time. On the same line is the S&P 500 Futures that drops 0.08% intraday to 4,121 at the latest, by tracking Wall Street’s losses. It should be noted that the US Dollar Index (DXY) retreats from an intraday high while snapping a two-day downtrend with mild gains around 106.30.

The market’s anxiety ahead of the US Consumer Price Index (CPI) data for July appears to restrict the pair’s latest moves. The inflation numbers become even more important of late as the recently firmer US jobs report underpinned the hawkish Fed bets.

On Tuesday, US Nonfarm Productivity improved to -4.6% during the second quarter (Q2), -4.7% expected and -7.4% prior, whereas the Unit Labor Cost increased to 10.8% from 12.7% prior and 9.5% market consensus during the said period. Before that, the US Nonfarm Payrolls (NFP) and Unemployment Rate also flashed welcome signs for July. Following the data, St. Louis Fed President James Bullard said on Tuesday that he wants rates at 4% by the end of the year. This joins recently firmer interest rate futures suggesting nearly 70% odds favoring the 75 basis points (bps) of a Fed rate hike in September.

It’s worth mentioning that the recession fears emanating from Europe and China’s downbeat inflation data, published earlier in Asia, also challenge the risk appetite.

Moving on, the US CPI is expected to ease to 8.7% from 9.1% on YoY while the CPI ex Food & Energy could rise from 5.9% to 6.1% during the stated month, per the latest market consensus. Should the US inflation remain firmer the US dollar will have a reason to extend the latest rebound amid hawkish expectations from the Fed.

Also read: US CPI Preview: It is the hard core that counts, five scenarios for critical inflation data

Technical analysis

A sustained pullback from the 100-DMA, around 0.9630 by the press time, directs USD/CHF bears towards the latest low near 0.9470. However, the 200-DMA support at around 0.9430 could challenge the bears afterward.