Minutes of the Federal Open Market Committee meeting, which took place on Nov 1 to Nov 2, 2022, revealed the Federal Reserve’s intentions to slow down on the increase in benchmark rates due to lower than expected US CPI data. This has lifted optimism for a slower pace of interest rate increases. The minutes also highlighted a more cautionary tone, that a balance is needed in considering the inherent risks of a rapid contractionary monetary policy. This resulted in a general decline in the perceived value of the US dollar.

This unsurprisingly contributed to the sharp drop of the USDCHF, from the highs of 1.0148 just a few weeks ago, to the current rate of around 0.9430. Policymakers have also added that rates have yet to show a substantive impact on inflation and will therefore continue to rise.

Looking at the technical aspect, the daily charts show strong support at around the 0.9380 level, which had hit a rapid double bottom level. The Relative Strength Index is currently in oversold regions, showing that the bears are in control. Indeed, the bears took further control over the past week when the bullish move failed to press above the 0.9600 resistance level, which seems to have emerged as a key trading pivot point.

If the 0.9400 levels hold strongly, we might see another attempt to push above 0.9600 and even form a strong upward channel created from the 0.9357 low on Nov 15, 2022, to the 0.9546 high on Nov 21, 2022. Any sustained upward buying pressure above the daily SMA200 levels of 0.9633 will indicate that the bulls are back. This is especially so if we go beyond the week high of 0.9558. However, we must first break through the daily pivot point of 0.9460.

Fundamentally, there is talk that the Swiss National Bank might reverse its decade-long policy of keeping the Swiss franc low and might start strengthening it by selling bigger parts of its foreign-exchange portfolio that is currently worth more than 800 billion francs. The EURCHF, for example, saw itself hovering strongly below parity even with the EURUSD recovery.

In addition, according to data released on Nov 23, the US economy shrank for a fifth consecutive month in November, with high interest rates impacting demand as new orders fell to their lowest in more than 2 years. This decrease in demand, coupled with a crunch in supply of general goods and services, will probably have an impact on US dollar demand, potentially driving the USDCHF down even more.

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The writer is strategist at Phillip Nova