USDCHF Facing a Battle Between Key Levels, Awaiting Fed’s Decision | Forexlive

The USDCHF experienced an upward movement during the Asian session today, reaching a swing area between 0.9311 and 0.93170 (see red numbered circles on the chart above). However, the price reversed course and has been trending downward throughout the London/New York trading sessions. As a result, the USDCHF dipped below its 50% midpoint of the range for March 2023, which stands at 0.92553. More recently today (the last few hours), it has remained below the 200-hour moving average of 0.9237 (green line in the chart above), indicating that sellers are in control.

The 200-hour moving average is close to the lows from Friday and yesterday, which further highlights the level’s importance. On the downside, a drop below the broken 38.2% retracement of the March trading range at 0.92117 should lead to increased selling pressure. However, sellers have already had a shot below this retracement level, and buyers leaned in instead, pushing the price back up to the 200-hour moving average. As such, there is an ongoing battle between the 0.9211 and 0.9237 levels.

The downward movement today occurs despite a surge in the two-year yield to 4.174% (up 25 basis points – that normally leads to a higher USD). Nevertheless, this rate remains below last week’s high of 5.085%. Tomorrow’s Fed interest rate decision will be crucial for understanding the potential direction of the USDCHF.

If the Fed expresses greater concern about inflation rather than financial stability, there may be more room for rates to rise, which typically leads to a stronger dollar. In this scenario, getting back above the 200 and 100-hour moving averages would shift the bias back to the upside, from a technical perspective.

On the other hand, if the Fed adopts a more forward-looking approach and acknowledges the recent financial sector wobble due to rapidly rising rates, the narrative may change. However, with the unemployment rate just 0.2% off its lowest level since 1969 (at 3.6%) and the CPI still at 6% for headline and 5.5% for core, it is challenging to argue that the job market is fragile. Thus, it remains to be seen how the Fed’s decision will impact the USDCHF in the coming sessions.

PS. The terminal rate is now forecast at 4.93% while the January 2024 rate is seen at 4.36%. That implies just one more 25 basis point hike followed by two 25 basis point cuts into the year end. The Feds terminal rate in December was at 5.1%