USD/CHF holds steady as Fed and SNB divergence widens

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… read more.
on Nov 23, 2021
  • The USD/CHF pair has been in a strong bullish trend lately.
  • It has soared to the highest level in almost 2 months.
  • We explain why the bullish trend will likely continue.

The USD/CHF price has been in a major bullish trend in the past few weeks as investors price in more divergence between the Federal Reserve and the Swiss National Bank (SNB). The pair is trading at 0.9325, which is about 2.63% above the lowest level this month.

SNB and Fed divergence

The USD/CHF pair popped in the evening session after Joe Biden appointed Jerome Powell to become the next Federal Reserve chair. This reappointment means that the Fed will have continuity to its programs. 

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Precisely, economists now expect that the Fed will continue with its gradual tightening in the coming months. This means that it will continue winding down its pandemic asset purchases. In its last meeting, the bank decided to reduce the size of its purchases by about $15 billion.

The SNB will likely adopt a more dovish stance in its bid to devalue the currency. For years, the bank has lamented about the strength of the Swiss franc. A strong franc tends to have a negative impact on the Swiss economy, which depends mostly on high-tech exports.

The rising number of Covid-19 cases will also provide the SNB with an excuse to continue easing. In the past few days, the number of daily cases has risen sharply. As a result, many people held protests in the country about the proposed lockdowns.

Still, the Swiss economy is doing relatively well. Its unemployment rate has dropped to about 2.9%. At the same time, it has defied the Philips curve considering that inflation has remained low. Recent data showed that the country’s headline CPI was still at about 1% despite the rise in crude oil prices.

The opposite is happening in the United States where inflation has jumped to the highest level in more than 30 years.

USD/CHF forecast

USD/CHF

The four-hour chart shows that the USD/CHF price has been in a major bullish trend in the past few weeks. Subsequently, the bullish trend is being supported by the 25-day and 50-day moving averages.

The pair is also approaching the key resistance level at 0.9361, which was the highest level on September 30th. 

Therefore, the pair will likely continue rising for now as investors target this resistance level. This view will become invalid if the pair drops below 0.9252.

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