USD/CHF Price Forecast: Rotates near key supply zone ahead of Fed policy
- USD/CHF ticks higher to near 0.8945 ahead of the Fed policy meeting at 20:00 GMT.
- The Fed is expected to cut interest rates by 25 bps to 4.25%-4.50%.
- The Swiss agency has lowered GDP growth to 0.9% and 1.5% for the current year and 2025, respectively.
The USD/CHF pair moves slightly higher to near 0.8945 in the North American session ahead of the Federal Reserve’s (Fed) monetary policy meeting at 20:00 GMT. The Fed is expected to deliver a 25-basis points (bps) interest rate reduction with slightly hawkish remarks on the policy outlook.
Market participants expect that Fed officials have become more worried about stalling progress in the disinflation process than downside risks to employment. The US core Consumer Proce Index (CPI) – which excludes volatile food and energy prices – remains steady at 3.3% in the September-November period.
Apart from the Fed’s policy decision, investors will pay close attention to Chair Jerome Powell’s speech to know the impact of incoming US President-elect Donald Trump’s policies, such as deportations, higher import tariffs, and lower taxes, on the inflation outlook.
Meanwhile, the Swiss Franc (CHF) remains broadly bearish as investors expect the Swiss National Bank (SNB) to cut interest rates further. For the Swiss economic outlook, the State Secretariat for Economic Affairs (SECO) has downwardly revised growth targets for the current year and 2025 to 0.9% and 1.5%, respectively.
USD/CHF gathers strength to break above the supply zone plotted in a range of 0.8925-0.8950 on a daily timeframe. The upward-sloping 20-day Exponential Moving Average (EMA) near 0.8860 suggests that the trend is bullish.
The 14-day Relative Strength Index (RSI) oscillates in the bullish range of 60.00-80.00, indicating a strong upside momentum.
After breaking above Tuesday's high of 0.8975, the asset could rise to near the psychological resistance of 0.9000 and the July 2 high of 0.9050.
In an alternate scenario, a downside move below the round-level support of 0.8700 could drag the asset toward the October 23 low of 0.8650, followed by the November low of 0.8616.
USD/CHF daily chart
Swiss Franc FAQs
The Swiss Franc (CHF) is Switzerland’s official currency. It is among the top ten most traded currencies globally, reaching volumes that well exceed the size of the Swiss economy. Its value is determined by the broad market sentiment, the country’s economic health or action taken by the Swiss National Bank (SNB), among other factors. Between 2011 and 2015, the Swiss Franc was pegged to the Euro (EUR). The peg was abruptly removed, resulting in a more than 20% increase in the Franc’s value, causing a turmoil in markets. Even though the peg isn’t in force anymore, CHF fortunes tend to be highly correlated with the Euro ones due to the high dependency of the Swiss economy on the neighboring Eurozone.
The Swiss Franc (CHF) is considered a safe-haven asset, or a currency that investors tend to buy in times of market stress. This is due to the perceived status of Switzerland in the world: a stable economy, a strong export sector, big central bank reserves or a longstanding political stance towards neutrality in global conflicts make the country’s currency a good choice for investors fleeing from risks. Turbulent times are likely to strengthen CHF value against other currencies that are seen as more risky to invest in.
The Swiss National Bank (SNB) meets four times a year – once every quarter, less than other major central banks – to decide on monetary policy. The bank aims for an annual inflation rate of less than 2%. When inflation is above target or forecasted to be above target in the foreseeable future, the bank will attempt to tame price growth by raising its policy rate. Higher interest rates are generally positive for the Swiss Franc (CHF) as they lead to higher yields, making the country a more attractive place for investors. On the contrary, lower interest rates tend to weaken CHF.
Macroeconomic data releases in Switzerland are key to assessing the state of the economy and can impact the Swiss Franc’s (CHF) valuation. The Swiss economy is broadly stable, but any sudden change in economic growth, inflation, current account or the central bank’s currency reserves have the potential to trigger moves in CHF. Generally, high economic growth, low unemployment and high confidence are good for CHF. Conversely, if economic data points to weakening momentum, CHF is likely to depreciate.
As a small and open economy, Switzerland is heavily dependent on the health of the neighboring Eurozone economies. The broader European Union is Switzerland’s main economic partner and a key political ally, so macroeconomic and monetary policy stability in the Eurozone is essential for Switzerland and, thus, for the Swiss Franc (CHF). With such dependency, some models suggest that the correlation between the fortunes of the Euro (EUR) and the CHF is more than 90%, or close to perfect.