Is the USD/CHF a buy or sell after the weak US GDP data?
- The USD/CHF pair declined to the lowest level since July 17 after the latest Fed decision.
- The pair also reacted to the strong US GDP data.
- The numbers showed that the American economy expanded by 6.5% in Q2.
The USD/CHF pair declined to the lowest level since June 17 after the latest Federal Reserve interest rate decision and the US Q2 GDP data. The pair fell to 0.9072, which was about 2% below the highest level this year.
US GDP data
The American economy did relatively well in the second quarter as more states moved to reopen and as health officials intensified their vaccination process. The exact growth rate was revealed on Thursday when the statistics agency published the latest US GDP data.
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The numbers showed that the economy expanded by 6.5% in the second quarter after it rose by 6.3% in the first quarter. This growth was significantly lower than the median estimate of 8.5%. This growth was mostly driven by a rise in consumer spending. Real consumer spending rose by 11.5% in the second quarter as more people got back to work.
Further, business investments, government spending, and the overall external demand helped improve the American economy. Meanwhile, the personal consumption expenditure prices rose by 6.4% while core PCE rose by 6.10%. The PCE figure is the Fed’s favourite inflation tool.
The American economy is expected to continue recovering in the third quarter. However, the ongoing wave of the Covid pandemic could derail the recovery especially if states order new lockdowns.
The USD/CHF pair also declined because of the latest Fed interest rate decision. The bank decided to leave interest rates between 0% and 0.25% in its July meeting. The members also committed to start deliberations on quantitative easing tapering in the next meetings. Analysts interpreted this to mean that the talks will start in December and that the bank will start tapering in January.
Looking ahead, the USD/CHF pair will react to the latest Swiss leading indicators and US June PCE numbers that will come out on Friday.
USD/CHF technical outlook
The USD/CHF formed a double-top pattern at 0.9230 this month. This week, it managed to move below the neckline at 0.9150. It also declined below the important support at 0.9115, which was the lowest level on July 15. The pair also fell below the 25-day and 50-day exponential moving averages (EMA) while the Stochastic oscillator has moved below the oversold level. Therefore, the path of least resistance for the pair is lower. If this happens, the next reference level will be 0.9000.
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