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Aiming at Parity on Monetary Policy Divergence

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  • The SNB remains dovish despite rising inflation and weakening the Swiss franc against the US dollar.
  • The USD/CHF is approaching parity at 1.0000 as the US dollar soars.

The USD/CHF forecast remains neutral despite the price pushing lower on Tuesday after hitting a one-month high as the divergence in monetary policy between the United States and Switzerland grows.

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Swiss inflation was at 2.9% in May, the highest in 14 years and above the SNB’s target range of 0-2%. It is likely to stay high, under the same upward pressure as in most other economies, due to higher energy and food prices. Despite this, the Swiss National Bank intends to keep its negative interest rates unchanged on Thursday.

The Federal Reserve is now raising rates by 50-bps and could increase to 75-bps pushing USD/CHF higher and higher.

“The SNB will mirror the ECB by keeping its policy settings unchanged at its June meeting. But with a July rate hike by euro-zone policymakers now locked in, the era of policy stasis in Switzerland is drawing to a close, and an unscheduled rate rise by the SNB … now seems the most likely outcome,” said David Oxley, an economist at Capital Economics.

USD/CHF key events today

There are no important news releases from Switzerland, but investors will look out for the producer price index and core producer price index from the US. This data is important as it gives investors clues on the consumer price index, which reflects inflation. Core PPI is expected to rise to 0.6% from 0.4%, while PPI from 0.5% to 0.8%.

A reading higher than expected would indicate higher inflation and could push USD/CHF to parity.

USD/CHF technical forecast: Short-term correction

USD/CHF forecast

Looking at the 4-hour chart, we see that the price has just come shy of the 1.0000 critical level before pulling back towards 0.9900. This move comes when the price is trading above the 30-SMA, and the RSI has hit the overbought level.

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This pullback might push the price to test the 30-SMA, or it may just find support at 0.9900. If support is found at 0.9000, the price will increase to 1.000. The bias for USD/CHF will remain bullish if the price keeps trading above the 30-SMA and the RSI stays above 50.

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