USD/CHF forecast: here comes the golden cross pattern

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on Apr 2, 2024
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  • The USD/CHF exchange rate continued soaring this year.
  • The Swiss National Bank slashed interest rates in March.
  • There are signs that the Fed will deliver fewer rate cuts this year.

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The USD/CHF exchange rate continued soaring as it became clearer that the divergence between the Federal Reserve and the Swiss National Bank (SNB) would continue for a while. The pair surged tto 0.9065 on Tuesday, its highest level since November 2nd.

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Fed and SNB divergence

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The USD to Swiss franc exchange rate has jumped sharply in the past few weeks as it became a great carry trade opportunity. Carry trade is a situation where investors move to currencies with higher interest rates.

This view accelerated after last month’s decisions by the SNB and the Federal Reserve. In its decision, the SNB caught economists by surprise as it slashed interest rates for the first time since starting its hiking cycle.

On the other hand, the Fed left interest rates unchanged between 5.25% and 5.50% in line with expectations. It has held rates steady at this level for several months. 

In its decision, the bank hinted that it would deliver three rate cuts this year. It expects that it will slash rates by about 75 basis points this year.

However, there are signs that the Fed may not deliver these rate cuts after all. For one, the Fed is contending with a situation where the US economy is contending with a strong economy and high inflation rates.

Economic data published on Monday revealed that the country’s manufacturing PMI rose from 47.8 in February to 50.3 in March. The manufacturing price index jumped to 55.8, signalling that there is strong demand in the country.

The labour market remains tight, with the unemployment rate remaining below 4% while retail sales have held quite well. 

However, inflation is the biggest thorn in the flesh for the American economy. The headline CPI rose to 3.1% in February while the core CPI jumped to 3.8%. The latter is almost double the Fed’s target of 2.0%. Therefore, some analysts expect that the Fed will deliver two or fewer rate cuts this year.

USD/CHF technical analysis

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USD/CHF chart by TradingView

The USD to CHF exchange rate has been in a strong bullish trend after bottoming at 0.8333 in December last year.

It has recently jumped above the crucial resistance at 0.8890, its highest swing on February 14th. The pair has also soared above the 200-day and 50-day moving averages. It is about to form a golden cross pattern, where the two averages cross each other.

The Relative Strength Index (RSI) and the Stochastic Oscillator have all pointed upwards. Therefore, the outlook of the pair is extremely bullish as buyers target the key psychological point at 0.9245, its highest point in October last year.

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