The USD/CHF currency pair experienced a dramatic rally this past week, climbing over 2.5% to trade near 0.8680 francs per dollar. The pair had dipped below the 0.8500 level just last Monday.
This surge in volatility, marked by the ATR indicator reaching its highest point since March 2023, was primarily triggered by the sharp decline in the Japanese stock market. As investors sought safety, the Swiss franc, a traditional safe-haven currency, saw a significant increase in demand. However, with the Nikkei 225 recovering from its recent lows, the appeal of the franc as a safe-haven has diminished.
Technical Analysis
Technical indicators suggest a potential for consolidation in the near term. The USD/CHF pair has extended its downward channel, with the previously supportive lower boundary now acting as resistance. Additionally, a black trendline from July may also cap price gains.
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On the other hand, the pair’s price action exhibits characteristics of a bullish formation. A retracement of approximately 50% of the previous upward move has occurred, suggesting a potential for renewed upside momentum.
Fundamental Outlook
The release of the US Consumer Price Index (CPI) data for July on Wednesday will be a key event to watch. While a slight uptick in inflation is expected, it is no longer viewed as a major market concern. According to Timothy Graf, senior macro strategist at State Street, “Inflation is no longer the problem it once was.”
Given the recent volatility, as evidenced by the elevated ATR, and the upcoming CPI data, the USD/CHF pair is likely to trade sideways around the current level in the short term. A clear directional bias is expected to emerge following the release of the inflation report.
Key Points:
- USD/CHF rallied sharply due to Japanese stock market decline
- Swiss franc demand weakened as Nikkei 225 recovered
- ATR indicator reached highest level since March 2023
- Technical analysis suggests potential consolidation
- US CPI data to be a key market driver
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