SNB's Rate Hike, Recession Fears, Drive Safe-Haven Plays on USD/CHF

Summary:

The USD/CHF outlook predicts a drop in the pair's value of safe-haven flows follow the SNB rate hike cycle.

The USD/CHF is facing a steep decline from recent highs at parity, as the usually conservative Swiss National Bank joined the interest rate hike party last week. With inflation at its highest levels since 2008, the SNB upped interest rates from -0.75% to -0.25%, surprising many. This first-rate hike in 15 years has suddenly made the Swiss Franc the most appealing safe-haven asset.

Faced with fears of a global recession and an eroding risk appetite, the Swiss Franc rose 0.39% on Monday against the US Dollar, resuming the steep 2.36% decline of 16 June. The latest Commitment of Traders report shows that traders have reduced their net shorts on the Swiss Franc from 15,850 contracts to 6.488 in the week of 24 May. A decline in the net CHF shorts can be anticipated moving ahead.

Technically speaking, the daily chart shows the emerging double top, which says all that must be said about the Swissy’s position vs the US Dollar. Further weakening of the USD/CHF will follow a breakdown of the critical neckline support.

USD/CHF Outlook

The progressively declining tops on the daily chart point to a possibility of a stall on the upside. The price is now testing the support at 0.96296 (17 January/4 February 2020 lows and 16 June 2022 low).

If the bulls fail to defend this support, the 0.95496 price mark comes into the picture and will serve as the pattern’s neckline. If the bears take out this neckline, it confirms the pattern and opens the door for a measured move that targets the 0.91899 support level. However, this move must take out 0.94303 (17 March and 14 April highs) and 0.92953 (21 March and 12 April lows) along the way. A downward extension below the completion point of the measured move targets 0.91101 (14 January 2022 low).

On the other hand, a failure to break down the 0.96296 support and a subsequent bounce aim for the 0.97957 resistance. 0.98905 (9 June 2022 high) is the bull’s next target following a further advance. The 0.98905 and 1.00404 (double top) price barriers are additional harvest points for bullish traders.