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USD/CHF exchange rate death cross points to more trouble ahead

on Dec 29, 2022
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  • The USD/CHF exchange rate has been in a strong sell-off lately.
  • The Fed and the Swiss National Bank hiked rates sharply in 2022.
  • It has formed a death cross pointing to more pain ahead.

The USD/CHF exchange rate has been in a steep sell-off after the Federal Reserve and Swiss National Bank (SNB) delivered their rate decisions in December. It was trading at 0.9260, which was about 8.3% below the highest point in November. 

SNB and Fed decisions

The USD/CHF decline has coincided with the deep sell-off of the US dollar. The US dollar index has dropped from the year-to-date high of $115 to the current $103. This performance is in response to the encouraging American inflation data and the recent rate decision by the Federal Reserve.

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In December, data published by the American statistics agency showed that the headline consumer inflation pulled back from 7.7% in October to 7.3% in November. It has dropped from a peak of 9.1% earlier this year. The unemployment rate remained at 3.7%, near its lowest point in 50 years.

Additional numbers have been supportive of the American economy. For example, data published last week showed that the economy expanded by 3% in the third-quarter after contracting in the previous two quarters. 

Meanwhile, according to the Conference Board, consumer confidence rose from 100 to 108 in December as they cheered falling inflation. The only recent disappointing data from the US is housing, where demand has cooled as mortgage rates soared to the highest level in a decade.

Therefore, as we wrote here, the Federal Reserve hiked rates by 0.50% in December and pointed to more increases in 2023. Analysts expect that the terminal rate will be 5.1%.

The USD/CHF forex price also reacted to the actions by the Swiss National Bank (SNB). The bank caught investors off-guard when it hiked rates several times in 2022. Economists believe that the SNB will be a bit cautious in 2023 in a bid to devalue the Swiss franc. Analysts at ING wrote that:

“We assume that the SNB will want further nominal appreciation in 2023. The big question is through which channels this occurs. The recent sharp fall in USD/CHF has taken the pressure off the EUR/CHF axis to make the adjustment. But if we are right with our call for the dollar to strengthen into the first quarter of 2023.

USD/CHF forecast

USD/CHF chart by TradingView

The daily chart shows that the USD to CHF price has been in a strong bearish trend in the past few weeks. It managed to cross the important support level at 0.9375, the lowest level on August 11. The pair also formed a death cross in December as the 200-day and 50-day moving averages made a crossover. 

The Relative Strength Index (RSI) moved slightly above the overbought level. Therefore, the outlook for the pair is bearish, with the next key support level to watch will be at 0.900.