USD/CHF may continue its decline – OCBC

The recent drop in USD/CHF was largely due to the level of the USD as markets re-priced in a larger than expected magnitude of Fed tapering and if the general USD trend is for further depreciation then USD/CHF it could still be grossly misrepresented. downside, note OCBC FX analysts Frances Cheung and Christopher Wong.

The SNB will support exporters by reducing the strength of the CHF

“The market’s resurgence in confidence to re-price the Fed’s 50 basis point cut can be attributed to the initial jobless claims data (which rose again) and the WSJ article on the Fed’s rate cut dilemma. We remain of the view that the CHF’s recent strength should moderate as the SNB pursues a neutral monetary policy and is likely to cut the policy rate (by 25 bps) to 1% at its next MPC on September 26 to third time in a row this year.

“Swiss inflation is also well under control at 1.1%, in line with the SNB’s expectations, and a benign inflation profile allows the SNB to ease policy. In addition, industry lobby groups, including watchmakers, the association of technology manufacturers, urged the SNB and the government to support exporters by reducing the strength of the CHF.”

“Slight momentum intact on the daily chart, while the RSI has declined. Two-way trades are likely, but a less dovish Fed scenario may help USD/CHF bounce back. Key resistance at 0.8780 (21 DMA). Breakout puts next resistance at 0.8575 (23.6% fibo retracement from May high to September low), 0.8640 (50 DMA). Support at 0.84, 0.8375 levels.”