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USD/CHF resumes its decline as dovish bets on the Fed and lower US yields weigh in

  • The USD/CHF declined towards the 0.8400 level with a 0.40% loss.
  • Markets currently anticipate a significant 160 basis points of easing by the Fed in 2024.
  • The pair ends the year with a 9% depreciation and marks its third consecutive weekly loss.

In Friday's trading session, the USD/CHF pair endured losses as it declined to 0.8405. The pair resumed its weakening trend, pressured by dovish bets on the Federal Reserve (Fed) and the impact of lower US yields, which that weighed heavily on the pair's dynamics.

At their last 2023 meeting, the Federal Reserve recognized a deceleration in inflation and a cooling of the economic activity, endorsing the absence of interest rate increases in 2024 whilst forecasting a 75 bps reduction as per the median terminal rate of the Dot Plot from the Summary of Economic Proyections (SEP). Now, market expectations account for rate cuts in both March and May, and some traders are placing bets on a cut a soon as in the upcoming meeting in January. The market's being overconfident that the Fed will start the easing cycle sooner than expected is weakening the US dollar.

The US Treasury yields are mixed, with some rates up and others down while remaining near multi-month lows. The 2-year rate is positioned at 4.27%, while the 5-year and 10-year rates are registered at 3.84% and 3.87% respectively. As yields descend, reflecting the mentioned dovish expectations, it results in a concurrent disadvantage for the USD, pushing down the USD/CHF.

In the upcoming week, markets await US labor market figures. Key insights will encompass December's Nonfarm Payrolls, Wage Inflation, and Unemployment Rate all closely monitored by the Fed.

USD/CHF levels to watch

Reflecting on the technical indicators from the daily chart, it's evident the selling pressure is currently in command. The pair is positioned under the critical levels of the 20, 100 and 200-day Simple Moving Averages (SMAs), underscoring the dominance of sellers in the broader market context.

The Relative Strength Index (RSI) reading conveys an oversold market condition, hinting at a potential reversal as bears may step back to consolidate. However, the presence of rising red bars in the Moving Average Convergence Divergence (MACD) signals that bearish momentum continues to ascend, adding an extra layer of challenge for the buyers.

In the short term, the rising bearish momentum evident from the MACD could temper a bullish reversal despite the RSI suggesting an oversold market scenario. Consequently, the aggressive selling pressure, accentuated by the position of the pair below the critical SMAs, continues to dominate the short-term technical outlook of the market.


Support Levels: 0.8400, 0.8350, 0.8330.
Resistance Levels: 0.8500, 0.8530, 0.8600.


USD/CHF daily chart

USD/CHF

Overview
Today last price0.8406
Today Daily Change-0.0035
Today Daily Change %-0.41
Today daily open0.8441
 
Trends
Daily SMA200.8655
Daily SMA500.8819
Daily SMA1000.8888
Daily SMA2000.8907
 
Levels
Previous Daily High0.8446
Previous Daily Low0.8333
Previous Weekly High0.8712
Previous Weekly Low0.8514
Previous Monthly High0.9113
Previous Monthly Low0.8685
Daily Fibonacci 38.2%0.8403
Daily Fibonacci 61.8%0.8376
Daily Pivot Point S10.8367
Daily Pivot Point S20.8293
Daily Pivot Point S30.8254
Daily Pivot Point R10.848
Daily Pivot Point R20.852
Daily Pivot Point R30.8594

Author

Patricio Martín

Patricio is an economist from Argentina passionate about global finance and understanding the daily movements of the markets.

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