USDCHF has erased some of its 6-week gains, with the 2-week decline reaching a correction of more than 50%. Last week the Swiss franc strengthened 1.7% against the US Dollar, after narrow trading ended the week. The price fluctuations in the pair clearly illustrate the current risk-off and risk-on mood. The Dollar Index has retreated more than 3% from a 20-year high, losing about half of its gains since late March.

New phase of high interest rates to combat rising inflation.

In an interview with Bilanz magazine last week, SNB Chairman Thomas Jordan said that the current situation has not been seen since the 2008 crisis, and the SNB sees monetary policy moving towards tightening in most currency areas. He said we are moving into an unfavorable situation for monetary policy, inflation globally is already high and even rising in many countries, while at the same time economic activity is weakening around the world.

Bilanz magazine commented that Thomas Jordan’s remarks signaled a shift from the ultra-expansive path the SNB has followed in recent years, characterized by the world’s lowest interest rates and large-scale currency intervention to stem the rise in the Swiss franc.

Meanwhile, SNB board member Andrea Maechler said the central bank would not hesitate to tighten policy if inflation in Switzerland remained high. The annual inflation rate in Switzerland edged up to 2.5% in April from 2.4% in March, the highest reading since October 2008. This figure has already exceeded the SNB’s 0-2% target range. On a monthly basis, consumer prices rose 0.4%, slowing from the 0.6% gain in March. Swiss inflation is indeed much lower than that of the Eurozone and America. The next May inflation report is due on Thursday (02/06) with forecasts of 2.6% y/y and 0.3% m/m.

The Swiss economic growth report for Q1 2022 is forecast at 0.3% q/q and 4.3% y/y and will be released on Tuesday (31/05), following the April Trade Balance and Retail Sales reports. Swiss GDP grew 0.3% q/q in Q4 2021, following an upwardly revised 1.9% expansion in the previous period and slightly below market expectations of a 0.4% growth rate, for an annualized basis of 3.7%, down from a revised 3.8% increase in the previous quarter.

Elsewhere, Fed speeches will begin on Monday, with Waller (one of the Hawks) discussing the economic outlook. Wednesday will be a busy day, with the release of the Beige Book and pronouncements  from the Fed’s Williams and Bullard. On Thursday, Logan will speak at an event on Monetary Policy Implementation and Digital Innovation and Mester will discuss the economic outlook. On Friday, Brainard will speak at an event hosted by the Urban Institute.

Technical Overview

The decline in USDCHF from the third peak of 1.0236 seems to have stalled at 0.8756, while the move up from 0.8756 has breached the psychological 1.0000 mark for the first time in 15 months. In a major period, there is actually no trend in the pair, with the pair’s price stuck below 1.0350 for the last 11 years.

USDCHF, H4

The drop from the 1.0063 top extended lower last week, albeit losing momentum a bit. Further declines are still profitable this week, but may be capped by 61.8% FR (0.9527) and resistance at 0.9472 to carry a rebound. A move above the 0.9763 minor resistance will turn the bias back to the upside for recovery. However, a sustained break of the 2 supports mentioned above will bring deeper declines to the 78.6% FR and 0.9194 support. The intraday indicators are still validating the move to the downside, but the oscillating histogram shows the opposite bias to the price action.

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Ady Phangestu

Market Analyst – HF Educational Office – Indonesia

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