USD/CHF: Here’s why the Swiss franc just soared to 2015 highs

USD/CHF: Here’s why the Swiss franc just soared to 2015 highs
Written by:
Crispus Nyaga
December 2, 2020
  • The USD/CHF pair declined to the lowest level since 2015.
  • The pair has dropped by more than 12% since April this year.
  • The decline is mostly because of the overall weaker US dollar.

The USD/CHF pair resumed the downward trend even after the disappointing inflation data. The pair is trading at 0.8990, which is the lowest it has been since January 2015.

USD/CHF
USD/CHF slides to 2015 lows

Swiss inflation remains weak

Most of the developed world is going through a long period of low inflation. In a report yesterday, Eurostat said that EU’s consumer price index (CPI) dropped by 0.3% in November. Similarly, in the United States, the CPI rose by just 0.2%, the lowest reading in the past five months.

Are you looking for fast-news, hot-tips and market analysis? Sign-up for the Invezz newsletter, today.

Earlier today, data from the Swiss bureau of statistics showed that the CPI dropped by 0.2% in November leading to an annualised decline of 0.7%. Economists polled by Refinitiv were expecting the prices to fall by a month-on-month and year-on-year basis of 0.1% and 0.5%, respectively.

Similarly, the core CPI dropped by 0.2% after falling by 0.1% in October. According to the bureau, the weak consumer prices are mostly because of a sharp decline in international package holidays and hotel accommodation. On the other hand, prices of rental houses and foreign wine increased during the month.

Other recent economic numbers from Switzerland have been positive. In October, retail sales rose by 3.1% while the rate of unemployment declined. Further, the economy expanded by 7.2% in the third quarter after contracting by 7.0% in Q2.

Therefore, the weaker US dollar is the main reason why the USD/CHF is at the lowest level since 2015. Indeed, the dollar index has dropped to 2018 lows because of the ongoing talk on stimulus and the relatively lower risk in the market. In a statement yesterday, analysts at MUFG wrote:

“We are maintaining our short USD/CHF trade idea to reflect our expectations that the USD is likely to weaken further following the favourable US election result and positive vaccine news.”

USD/CHF technical outlook

USD/CHF
USD/CHF technical chart

On the weekly chart, we see that the USD/CHF price has been in a steady downward trend in the past few months. It has fallen by more than 12% from its April high of 1.0242. Also, in July, it moved below the February 2018 low of 0.9192, which was an important support.

Further, in the past few weeks, the pair was forming a bearish pennant pattern that is shown in green. As you can try on a free demo account, this pattern tends to have a bearish outcome.

The descending trend is also being supported by both moving averages and the Stochastic oscillator. Therefore, I predict that the pair will continue falling as bears attempt to cross the vital support at 0.900.