USD/CHF gauges cushion below 0.8600, downside seems favored despite marginal recovery in USD Index

• USD/CHF is building a base after a sheer correction to near 0.8570.
• It would be early calling the recovery move in the USD Index a reversal amid an absence of supportive economic indicators.
• Michigan Consumer Sentiment Index (June) data is expected to improve to 65.5 vs. the former release of 64.4.

The USD/CHF has found temporary support after a perpendicular sell-off to near 0.8570 in the London session. The Swiss Franc asset is still prone to more losses as fundamentals are still unfavorable and fresh shorts could be built ahead.

S&P500 futures have generated nominal losses in Europe. The US-500 stock basket has remained in the bullish trajectory in the past four-trading sessions but caution among market participants has appeared ahead of quarterly result season.

The US Dollar Index (DXY) is gatherings strength to extend its recovery move made after dropping to near 99.50. It would be early calling the recovery move a reversal amid an absence of supportive economic indicators. This week, the consumer and producer prices report for June month confirmed that the United States is set on track to achieving the 2% inflation target.

Demand for big-ticket items has dropped and gasoline prices have been squeezed, which has released some heat from red-hot inflation. However, labor market conditions are still tight and the core Consumer Price Index (CPI) which doesn’t include volatile oil and food prices is still at 4.8%. Therefore, fears of high inflation are still persistent and the Federal Reserve (Fed) has no chance than to raise interest rates further.

On Friday, investors will focus on preliminary Michigan Consumer Sentiment Index (CSI) (June) data. As per the consensus, the sentiment data is expected to improve to 65.5 vs. the former release of 64.4. Improvement in the market sentiment could be the outcome of a significant decline in inflationary pressures.

Meanwhile, the Swiss Franc is expected to remain solid as the Swiss National Bank (SNB) is expected to raise interest rates further despite inflation data has shown figures below 2% for once. For keeping inflation below 2% steadily, more interest rate hikes are warranted.