USD/CHF plunges towards 0.8900 as soft US CPI and falling yields weigh

• The USD/CHF fell by more than 1%, settling around 0.8915.
• The USD weakened as markets are confident that the Fed won’t hike in December.
• Markets focus shifts to PPI and Retail Sales figures on Wednesday.

The USD/CHF saw an impressive downward spiral on Tuesday, declining near 0.8915, seeing a loss of more than 1%, mainly driven by a broad US weakness following the report of October inflation figures from the US.

According to the US Bureau of Labor Statistics (BLS), the US October Consumer Price Index (CPI) increased by 3.2% YoY, below both previous forecasts and the rate of its prior month. Additionally, core CPI inflation, which excludes volatile food and energy prices, dropped to  4% YoY, below both September's rate and the estimated 4.1%. On a monthly basis, it decelerated to 0.2%, below both last month's reading and the predicted 0.3%.

The inflation figures had a direct impact on US government bond yields as the rate for the 2-year bond rate fell to 4.84%, and the 5 and 10-year yields were observed falling to 4.44% and  4.45%. As a result, these yield movements may signify that markets are cheering that a potential rate hike by the Federal Reserve (Fed) in December may no longer be on the table with inflation and the labor market cooling down. Now, attention turns to the next set of data, which will provide insight into how long the central bank will maintain restrictive interest rates to start shaping expectations on rate cuts. 

On Wednesday, the Producer Price Index (PPI) is expected to have decelerated to 1.9% YoY, while Retail Sales are seen declining by 0.3% in October. 

USD/CHF levels to watch

Analysing the daily chart, the USD/CHF has a bearish bias, with indicators reflecting that the sellers are strengthening. Exhibiting a downtrend below its midline, the Relative Strength Index (RSI) supports this view, as well as the Moving Average Convergence (MACD), as it lays larger red bars.  In the larger context, the pair is also below the 20 and 200-day Simple Moving Averages (SMAs) but above the 100-day SMA$, indicating that the bulls continue to exhibit strength on the larger time frames despite the bearish sentiment seen in the short-term.

Supports: 0.8900 (100-day SMA), 0.8870, 0.8850.
Resistances: 0.8930, 0.8950, 0.9000 (20 and 200-day SMA convergence).

USD/CHF daily chart