The dollar retreated from a two-week high compared to major currencies. The rebound came amid investors' assessment of the Federal Reserve's (Fed) interest rate outlook after a crucial vote on the U.S. debt ceiling.
The fight against high inflation, which could turn into recession, is coming to the forefront.
In case of global recession, the Federal Reserve's reaction will be swift, followed by a sharp decline in interest rates, says Ole Hansen, head of strategy at Danish Saxo Bank. This means that a risk premium will again shift in favor of assets that benefit from lower key rates.
Markets currently estimate the probability that the Fed will raise rates by 25 basis points at its June meeting at about 26%, compared to a 67% probability the day before, according to the CME FedWatch tool.
Hansen remains optimistic about the long-term outlook for precious metals and other safe-haven asset markets.
Even though inflation in the United States continues to decline, it will hardly reach the 2% target.
Eventually, higher inflation will force the Federal Reserve to raise the target to 3% or 4%. This will have a significant impact on real interest rates and reduce the value of the U.S. dollar, according to the strategist.
Today at 9:00 GMT the European Consumer Price Index is to be released. Inflation is expected to remain at 7%, which is the same as the previous value. Any deviation from the forecast will increase the price movement in European currency pairs.
Tomorrow the U.S. labor force will release the nonfarm payrolls report. The number of employed people is expected to drop to 180K from the previous value of 253K. Expectations of weak statistics may push the USD down.
An uptrend is forming on the USDCHF quotes H4 time frame. The price has rebounded from the trend's resistance. The Relative Strength Index (standard values) shows a divergence, which gives a leading signal for a reversal in the trend.
Signal:
USDCHF short-term outlook is to Sell.
The target is at the level of 0,9025.
Take profit could be placed near the level of 0,9075.
A stop-loss could be placed at the level of 0,9165.
The bearish trend is short-term, so trading volume should be no more than 2% of your balance.
This content is for informational purposes only and is not intended to be investing advice.
