USD/CHF forecast: chart pattern points to more upside

The USD/CHF exchange rate rose slightly after a series of weak economic numbers from the US and Switzerland. It rose slightly to a high of 0.9090, a few pips above this week’s low of 0.8988. It has jumped by almost 9% from its lowest point this year.

US and Switzerland economic data

The USD/CHF pair drifted upwards after Switzerland published weak GDP data. According to the State Secretariat for Economic Affairs (SECO), the economy grew by 0.2% in the first quarter, continuing a weak trend for three straight quarters.

The weak economic growth raises the possibility that the bank will deliver another rate cut in its next meeting on June 20th. It started its rate cuts in March when it lowered them unexpectedly from 1.75% to 1.50%.

Elsewhere, in the United States, data revealed that inflation softened in April. The headline and core Consumer Price Index (CPI) softened to 0.3%. They dropped to 3.4% and 3.6%, respectively, ending the previous reflation trend.

Further data showed that the country’s retail sales dropped in April as consumers remained concerned about inflation. The report came a few days after a report by Bank of America warned that the softness of the labor market could impact spending.

Another data released on Thursday showed that building permits dropped from 1.48 million in March to 1.44 million in April, missing the expected 1.48 million. The housing starts figure rose to 1.36 million, lower than the expected 1.42 million. 

Also, the manufacturing and industrial sectors are not doing well. The manufacturing production number dropped by 0.3% in April while the industrial number remained flat. 

Therefore, the soft inflation numbers coupled with the weak economic figures mean that the Fed may come under pressure to start cutting interest rates later this year. The market is now expecting two or three cuts this year.

Fed and SNB rate cuts will still be bullish for the US dollar because of the carry trade opportunity that exists. Chances are that US rates will remain higher than those in Switzerland.

USD/CHF technical analysis

USD/CHF chart by TradingView

The USD to CHF exchange rate has remained in a consolidation phase in the past few days. It was trading at 0.9100, which is a few points above the 38.2% Fibonacci Retracement level. 

Further, it has formed a golden cross pattern, where the 50-day and 200-day Exponential Moving Averages (EMA) make a bullish crossover. Also, it has formed an inverse head and shoulders pattern, which is often a positive sign.

Therefore, the outlook for the pair is moderately bullish, with the next point to watch being at 0.9225, the neckline of the H&S pattern and the 50% retracement point.