The USD/CHF forecast remains neutral despite the price pushing lower on Tuesday after hitting a one-month high as the divergence in monetary policy between the United States and Switzerland grows.
Swiss inflation was at 2.9% in May, the highest in 14 years and above the SNB’s target range of 0-2%. It is likely to stay high, under the same upward pressure as in most other economies, due to higher energy and food prices. Despite this, the Swiss National Bank intends to keep its negative interest rates unchanged on Thursday. The Federal Reserve is now raising rates by 50-bps and could increase to 75-bps pushing USD/CHF higher and higher.
“The SNB will mirror the ECB by keeping its policy settings unchanged at its June meeting. But with a July rate hike by euro-zone policymakers now locked in, the era of policy stasis in Switzerland is drawing to a close, and an unscheduled rate rise by the SNB … now seems the most likely outcome,” said David Oxley, an economist at Capital Economics.
We see that the price has just come shy of the 1.0000 critical level before pulling back towards 0.9900. This move comes when the price is trading above the 30-SMA, and the RSI has hit the overbought level.
This pullback might push the price to test the 30-SMA, or it may just find support at 0.9900. If support is found at 0.9000, the price will increase to 1.000. The bias for USD/CHF will remain bullish if the price keeps trading above the 30-SMA and the RSI stays above 50.
Trade accordingly with your risk
Gold prices continue to languish despite an increase in market volatility. A stronger US Dollar and rising oil prices weighed on the yellow metal. Economists and big banks are split on the odds of a recession, but current economic indicators around the labor market and elsewhere remain solid.
The next update in the US inflation story comes Friday when the consumer price index (CPI) is set to cross the wires. Friday’s CPI data may have little influence on the Fed’s path forward, given that the June and July meetings have been clearly telegraphed. However, a much hotter-than-expected print may firm up bets later this year, especially if the print drives farther-dated inflation expectations higher, causing expectations to become unanchored, which would attract a reaction from the Fed.
Gold prices sit just below a key trendline. Directly below sits the 200-day Simple Moving Average. A drop below that SMA could open the door for prices to fall to the psychologically important 1800 level.
On Wednesday, a survey showed the US manufacturing activity was more robust than investors expected for May pushing the dollar and subsequently USD/JPY higher. This move cooled off Thursday morning as traders took profits at the 130.00 level.
The move down today can also be attributed to the hope investors got when there was news of a possible increase in oil production by Saudi Arabia in case Russia’s output dropped. This news cooled some of the inflation fears brought on by high energy prices. Increased production would reduce global supply pressures and lower oil prices.
A significant part of the inflation experienced by many economies worldwide is a result of high energy prices pushing the cost of living higher. Lower oil prices would therefore be an essential weapon against inflation. For this reason, Thursday morning saw USD/JPY give up some of its earlier gains.
The price is currently experiencing a bit of resistance at the 130.00 critical level. At this level, the price could do one of two things. The first is that the price might bounce off the 130 level and pull back to the 20-SMA, and the second is that it might push higher to 131 before pulling back.
EUR/AUD broke below the April trendline with the decline now testing confluent support at 1.4800/05- looking for possible price inflection here. A break lower would keep the focus on 1.4686 level, looking for a larger reaction there for guidance IF reached. Resistance now 1.4912/25 with bearish invalidation now lowered to the April high at 1.5055.
Bottom line: Rallies should be capped by today’s high IF price is heading lower on this stretch with a break / daily close below 1.48 needed to keep the near-term short-bias viable.
The FTSE 100 is now close to entering a zone of prior highs after adding nearly 500 points since May 12. The rally in the FTSE 100 comes against a troubled UK political and economic backdrop, but the trend higher remains in place. The 7,635-7,688 area will provide resistance and if the FTSE is to break above here it will need a strong economic driver to spark the move. The first level of support is seen around 7,540.
Trade accordingly with your risk