USD/CHF rebounds as US yields pushes USD higher

By: Crispus Nyaga
Crispus Nyaga
Crispus is an active trader, where he is followed and copied at Capital.com. He lives in Nairobi with his wife, son,… read more.
on Mar 12, 2021
  • The USD/CHF bounced back after the latest SECO economic forecasts.
  • The pair is also reacting to the relatively weaker US dollar after Biden signed the stimulus package.
  • The pair may continue the upward trend in the near term.

The USD/CHF price rose on Friday after the latest Swiss government economic forecast and after Joe Biden signed the new $1.9 trillion stimulus package, pushing US yields higher.

USD/CHF
USD/CHF chart

Modest recovery for the Swiss economy 

The Swiss economy is set to rebound this year after contracting by 2.9% in 2020. According to the State Secretariat for Economic Affairs (SECO), the economy will see a small contraction in the first quarter of this year and then rebound for the rest of the year. In total, the committee expects that the economy will grow by 3% this year and by 3.3% in 2022.

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This rebound is attributed to several factors. First, the government has already started the vaccination process. It expects that the total population will be vaccinated in the next few months. This will lead to more business activities and boost personal consumption, which is the biggest contributor to the GDP. 

Also, the committee expects that more spending overseas will lead to more export growth in the country. This demand has already started to rebound, as evidenced by the recent Swiss manufacturing and services PMI data. 

The USD/CHF is also holding steady after Joe Biden signed the latest $1.9 trillion stimulus package. This means that the funds will start being distributed to individuals, companies, and states in the next few weeks. 

On Wednesday, data by the Bureau of Labour Statistics (BLS) revealed that the overall American inflation rose from 1.4% in January to 1.7% in February, in line with expectations. Core CPI increased by 1.4% during the month.

Therefore, while inflation will rise above 2.0% in the near term, analysts believe that growth will be limited. Indeed, the five-year breakeven point is predicting that inflation will rise to 2.5% and then drop to about 2% later this year. This has seen the US dollar cool against key currencies in the near term. 

USD/CHF forecast 

USD/CHF
USD/CHF technical chart

The USD/CHF price has been in a strong upward trend. Indeed, the pair reached a high of 0.9763, which was the highest level since July 2020 because of the strong dollar. In the past few sessions, however, the price has retreated to 0.9235. 

On the daily chart, the price is still above the 25-day and 50-day exponential moving averages (EMA). It is also a few pips below the important resistance level at 0.9300 while the Relative Strength Index (RSI) has continued to rise. Therefore, in my view, the pair may resume the upward trend as bullish forex traders target the important resistance at 0.9400.

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