At the end of last week the USDCHF currency pair showed a powerful rebound from the two-year lows. Prices managed to break the downtrend line stretching from March, but the direction of further movement is still not determined. The price is consolidating near the level of 0.89, waiting for a new impulse of growth or fall.
Last Friday the dollar reacted very positively to the still robust U.S. labor market data, showing low unemployment and a strong increase in new jobs. Today’s Consumer Price Index figures for April could also provide support to the dollar. A continued high rate of inflation could help the USDCHF to develop an upward movement.
The market participants predict the annual CPI rate in the U.S. at 5%, unchanged from the March statistics. At the same time, core inflation, which excludes energy and food prices, because of their volatility, might slightly decrease to 5.5%. On a monthly basis, the core inflation and CPI figures could show an increase of 0.4%.
If U.S. inflation is higher than expected, it could force the Fed to reconsider its strategy to end its monetary tightening cycle. It will be positive for the dollar. After Friday's labor market data, the possibility of another 0.25% rate hike at the June 14 meeting is estimated at 20%, although before the release of the unemployment statistics the possibility of a quarter-point hike was almost zero.
According to the technical analysis, the breakout of the downtrend line from the bottom to the top is in favor of further growth in the USDCHF. The Stochastic indicator increases the probability of the rise in quotes, giving a buy signal. In the short term the "bulls" can be oriented at the level of yesterday's highs around the level of 0.894. As long as the prices are above the level of 0.885, buyers take the initiative.
The following trading strategy can be suggested:
Buy USDCHF in the range of 0.887–0.889. Take profit — 0.894. Stop loss — 0.885.
Traders can also use a Trailing stop instead of a fixed Stop loss at their discretion.
This content is for informational purposes only and is not intended to be investing advice.
