FOREX Fundamental analysis for USDCHF on June 18, 2024
Investors are in the dark: will the Swiss National Bank (SNB) cut the key rate at the meeting on June 20 or leave it at 1.5%? After the start of the monetary policy easing cycle in March, the Swiss franc, which was the best G10 currency by the end of 2023, turned into a clear outsider relative to other forex currency indices. However, uncertainty about the SNB's next steps, rising political risks in Europe, slowing inflation in the United States and increased volatility of the franc suggest a possible end to the upward trend in USDCHF.
The chances of a reduction in the key rate, according to derivatives estimates, are now regarded as fifty-fifty. In early April, they peaked at 97.7%, but fell sharply to 33.6% after the "hawkish" statements by the head of the SNB, Thomas Jordan. Jordan noted that the weakness of the franc is the main driver of inflation growth, and the SNB will fight this with currency interventions. Investors have found confirmation of the words of the head of the regulator. HSBC claims that, according to data on Swiss foreign exchange reserves, the National Bank either switched to buying the franc or significantly reduced its sales.
As a result, the franc has strengthened again and is leading among the G10 currencies over the past 30 days. The growth of political risks in Europe, expressed in the widening of the yield difference between French and German bonds, also supports the franc as a protective asset.
The market doubts that the SNB will continue easing monetary policy in June. This assumption is supported by a stronger-than-expected economy and inflation, which settled at 1.4% in May, in line with SNB forecasts for the second quarter. If the CPI turned out to be lower, it would be safe to talk about a further reduction in the key rate.
The main arguments in favor of continuing to ease the SNB's policy are the franc, which has strengthened compared to the previous meeting of the Central Bank, and the overly emotional reaction of investors to Thomas Jordan's words about currency interventions. The head of the Central Bank could speak hypothetically, and it is unlikely that he is now interested in interfering in Forex currency trading. Supporters of this version were surprised by the market reaction to Jordan's statements.
According to Bloomberg, the SNB will prefer to wait and see if there are any new surprises in the dynamics of inflation. If not, it will be possible to resume the cycle of monetary policy easing. UBS adheres to a similar position and has completely revised its forecast for a key rate cut in June.
It can be said that the market remains in the dark about the actions of the SNB. If another step is taken along the path of monetary expansion, this may lead to an increase in USDCHF quotes to the level of 0.9, from where it will be possible to sell the pair. Otherwise, with the rate at 1.5%, we get the basis for the formation of short positions with target marks of 0.88 and 0.87.