The USDCHF pair fell to its lowest levels since early April after yesterday’s Fed meeting ahead of today’s decision of the Swiss National Bank (SNB) on the monetary policy. Let’s assess the financial regulators’ actions and the impact they have on the U.S. dollar’s and the franc’s dynamics.
The Fed raised its key rate by 0.5% to a range of 4.25–4.5% fully in line with market expectations. However, Chairman Jerome Powell’s followed-up comments were much more important. Despite decreasing the pace of rate hikes from 0.75% to 0.5%, Powell and his colleagues deny the possibility of stopping the tightening cycle and forecast interest rates to peak above 5% in the following year, suggesting no possibilities for rate cuts until 2024.
Surprisingly, market participants weren’t convinced by the Fed officials’ speech, and rate cuts in the second half of 2023 continue to be considered in market prices. These actions against the Fed’s policy are unlikely to be a good idea in the long-term, but so far it was enough for another day of decline in USDCHF.
The SNB, just like the Fed, lowered the pace of rate hikes from 0.75% to 0.5%, bringing it to 1%. Given that the SNB has only 4 meetings per year, Swiss officials could have taken a more drastic step, as next time they’ll consider monetary policy changes only in March. By then, the Fed would hold two more meetings, and the difference between rates could shift in favor of the dollar again, giving it a boost against the franc.
An option of buying USDCHF for the current price may be considered, or another decline to the level of 0.92 can be awaited. As a growth target, the level of 0.937 can be indicated.
Following trading strategies can be offered:
1. Buy USDCHF at the current price. Take profit – 0.937. Stop loss – 0.924.
2. Buy USDCHF as it declines to 0.92. Take profit – 0.937. Stop loss – 0.915.
Traders may also use a Trailing stop instead of a fixed Stop loss at their discretion.