USD/CHF Forecast: Safe-haven Dollar is Driving the Franc’s Weakness

• Even the Swiss franc cannot attract investors as much as the US dollar amid recession fears.
• Dollar strength might worsen the already high inflation in Switzerland.Switzerland’s Producer Price Index declined, and this could mean cooling inflation.

Today’s USD/CHF forecast is bullish as the Swiss franc is not immune to dollar-driven weakness. Despite the recent pause in the US dollar’s rally, analysts believe the catalysts for dollar strength, mainly recession fears, will keep it soaring. As the dollar soars, the Swiss franc suffers weakness, which drives inflation in Switzerland.

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Although the Swiss National Bank is on the hawkish side, it does not raise rates as frequently as the Federal Reserve. The next rate hike from SNB is expected in September, with investors betting on 100bps. SNB governor Thomas Jordan said he no longer sees the franc as highly valued.

Markets expect a 100 bps hike from the Federal Reserve next week, supporting dollar strength. This expectation comes after the 9.1% year-over-year inflation reading in the US.

Producer Price Index data released yesterday from Switzerland significantly declined to 0.3% from 0.9%. This news further weakened the franc against the dollar as it is an indicator of consumer inflation. If consumer inflation is also cooling, the 100bps bets for the Swiss National Bank’s September meeting might go down.

USD/CHF key events today 

USD/CHF investors will get an idea of the current state of consumer spending in the US when the retail sales data is released later today. Investors expect core retail sales to increase to 0.6% from 0.5% and retail sales to go up from -0.3% to 0.8%.

USD/CHF technical forecast: Weakness at 0.98824

The 4-hour chart shows a bearish divergence in the RSI, which indicates weakness in the uptrend. This weakness is seen in the most recent high at 0.98824, which failed to garner bullish momentum as the previous high. This weakness might only be a pause in the uptrend that requires a deeper pullback. It might also be a reversal in the trend but would only be confirmed by a clean break below the 30-SMA and RSI trading below 50. 

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The price is currently at 30-SMA, which might act as support, as it has done before. If the price breaks below this SMA, the next support level will be at 0.97532.

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