USD/CHF: Upside risk on the cards – OCBC

SNB surprised with a 50bp cut to bring policy rate to 0.5%. Markets were split between a 25 and 50bp cut. USD/CHF was last seen at 0.8938 levels, UOB Group’s FX analysts Quek Ser Leang and Lee Sue Ann note.

Safe-haven characteristic of the CHF may play up

“There was a slight tweak in the statement to say that policymakers will ‘adjust its monetary policy if necessary to ensure inflation remains within the range consistent with price stability over the medium term.’ Vs its Sep statement, which indicated that ‘Further cuts in the SNB policy rate may become necessary in the coming quarters to ensure price stability over the medium term.’ The phrase ‘further cuts’ was dropped in the current statement. SNB Chairman Schlegel did say that ‘if needed we will adjust rate at March meeting.. will tolerate inflation outside 0 - 2% range’.”

“It does give the impression that policymakers will be more tolerant of any slippage in inflation in the short term but policymakers will still be watchful of CHF appreciation. Statement mentioned that SNB is prepared to intervene in FX markets if needed and that Schlegel reiterated their willingness to implement negative interest rates if necessary. Overall, we maintain a mild bearish bias on CHF on the back of dovish SNB that is watchful of strong CHF, amid ongoing disinflationary pressures.”

“That said, safe-haven characteristic of the CHF may play up in the event of geopolitical risk-offs or during episodes of political uncertainties in Germany, France. USD/CHF rose. Bearish momentum on daily chart faded while RSI rose. Risks skewed to the upside. Resistance at 0.8955, 0.9020 (76.4% fibo retracement of 2024 high to low). Support at 0.8850 (21 DMA), 0.88 levels (50% fibo).”