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USD/CHF analysis: Here’s the path of the least resistance

By:
on May 4, 2023
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  • The USD/CHF pair has been in a steep freefall in the past few months.
  • The Federal Reserve decided to hike interest rates by 0.25%.
  • Focus now shifts to the upcoming US non-farm payrolls data.

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The USD/CHF exchange rate plunged to the lowest level since February 2021 after the latest interest rate decision by the Federal Reserve. The pair moved to a low of 0.8817, which was ove 13% below the highest point this year.

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Fed interest rate decision

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The most important USD news this week was the interest rate decision by the Federal Reserve. In it, the committee decided unanimously to hike interest rates by 0.25%. And in his press conference, Jerome Powell ruled out any interest rate cuts this year because of the sticky inflation.

Therefore, the USD/CHF pair dropped as investors predicted that the Federal Reserve was now done with interest rates. A case for pausing increases exists since it is clear that the American economy is softening as evidenced by the recent economic data.

Earlier this week, numbers by the Institute of Supply Management revealed that the manufacturing sector continued consolidating in April. Many manufacturers complained of high cost of doing business and the lack of clarity on order flow.

Other numbers have shown that the labor market was easing. Further, the commercial real estate sector is imploding while bank failures this year have risen to the highest point in years. As I wrote in this article, several banks like Western Alliance and PacWest are on the verge of collapse.

The next key catalyst for the USD/CHF price will be the upcoming US non-farm payrolls (NFP) data scheduled for Friday. Economists polled by Reuters expect the data to show that the unemployment rate remained at 3.6% in May as the economy added over 180k jobs. 

While these are important numbers, their impacts on the USD will be a bit limited since investors already have clarity of what to expect from the Fed. And the Swiss National Bank will next meet in June.

USD/CHF technical analysis

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USD/CHF chart by TradingView

The USD/CHF price has been in a strong sell-off in the past few months. This decline has coincided with the crash of the US dollar index. It has moved below the key support level at 0.9088, the lowest level in November 2021 and January 2022. It was also the lowest level on February 2023. The pair remains below all moving averages.

Therefore, the path of the least resistance for the pair is downward, with the next level to watch being at 0.8750. The stop-loss of this trade will be at 0.9088.

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